The bid’s latest economic message: a recession is not certain

Written by Javed Iqbal

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President Biden on Wednesday appealed to Congress to suspend the federal gas tax, saying it was crucial to reduce the pain Americans feel at the pump. “I promise you I’m doing everything I can to get the price of energy down,” Biden said as pictures of oil pumps and gas stations flickered on the wall behind him.

But the idea of ​​a gas-tax holiday was met with immediate criticism – not only from members of both parties on Capitol Hill, but even from many administration officials who said privately that it would probably do little to lower gas prices significantly.

Senior Treasury officials expressed doubts about the gas tax holiday, and at least two top White House economists also made private reservations, according to two people familiar with the internal deliberations, who spoke on condition of anonymity to reveal sensitive conversations.

Biden’s willingness to push ahead despite these internal concerns reflects his struggle to confront an economic landscape that, despite some signs of strength, is a deep concern for many voters. From declaring inflation “transient” to describing a recession as “not inevitable”, White House officials have turned from one message to another.

They have also persistently sought political action to reduce American costs, despite having few obvious political tools to dramatically reduce the price of gas. Even as Biden on Wednesday called on Congress to adopt the tax holidayasked states to suspend their own gas taxes and demanded that oil refineries produce more fuel, he acknowledged the limitations of his political regulations.

“I fully understand that a gas tax vacation alone will not solve the problem,” Biden said. “But it will give families an immediate relief, just a little bit of respite, while we continue to work to bring prices down in the long run.”

How a gas tax holiday would work

Biden asked Congress to suspend the federal gas tax of 18.3 cents per. gallon – and the diesel tax of 24.3 cents per. gallon – for three months, a request coming just before July 4, where millions of Americans are expected to travel for the holidays. The average price of a gallon of gas hit nearly $ 4,955 per gallon. gallon nationally Wednesday, down from record highs of more than $ 5 per gallon earlier this month according to AAA.

But the president’s request is likely to meet fierce opposition on Capitol Hill, including from top members of his own party who have already made it clear that they are protesting against a suspension of the gas tax. It is still unclear what Biden plans to do, if anything, to get lawmakers to support the policy.

In a speech to reporters Wednesday, House Majority Leader Steny H. Hoyer (D-Md.) Stressed that he was “sympathetic” to the president’s request and that lowering gas prices is a “good measure.” But Hoyer joined other Democrats, expressing concern that it may not “have the intended effect in terms of retail price.”

And he said Democratic leaders “do not know” if they have the votes to promote it and have not yet spoken.

“[Rep. Peter A.] DeFazio [Speaker Nancy] Pelosi himself, we have all expressed reservations about it. But the US president has proposed it, “Hoyer added later.” We will look into it. We all agree that the price of the pump is hurting working Americans. “

But Biden faces the reality that the seemingly insoluble problem of rising prices threatens to darken his agenda and any democratic political message. Many inside the White House have concluded that the president must at least show that he understands the suffering of Americans and does everything he can to help, even if not everything works in the short term.

Some vulnerable Democrats celebrated Biden’s announcement.

“I introduced my bill months ago to suspend the federal gas tax and never stopped working to bring Georgia’s families relief at the pump,” tweeted Senator Raphael G. Warnock (D-Ga.), Who faces a harsh re-election campaign in November. on Wednesday. “I am pleased that the President supports this idea and finally listens to me and my colleagues to take this crucial step.”

Yet it is not a universal attitude. Eswar Prasad, an economist at Cornell University, said top Treasury officials have been clear in internal discussions that they believe Americans are likely to see only limited benefits from a gas-tax vacation, even if Congress were to adopt one.

“The Treasury has approached this from an analytical perspective, and people realize that the direct economic benefits to consumers are likely to be quite limited, while the budgetary implications would be significant,” said Prasad, who served as an official at the International Monetary Fund. with reference to conversations with several senior officials.

Treasury officials “expressed concern to the White House that this is not the optimal strategy to tackle inflation, and the political benefits are likely to be quite limited,” Prasad said.

In his remarks on Wednesday, Biden said that if all of his recommended actions were taken together – gas levies from Congress and the states and increased production of oil refineries – it could save Americans as much as $ 1 per tonne. gallon at the pump.

In a speech to journalists this week, Treasury Secretary Janet L. Yellen offered a measured support for the idea and for the notion that consumers benefit when the gas tax is suspended.

“A number of states in the United States have cut their gas taxes, and I think the research suggests that there is a reasonably high impact when a state does it at the prices at the pump – not full, but reasonably high,” Yellen said. “At the federal level, we have a lower gas tax than at the state level. The evidence is more mixed.”

She added: “Consumers really feel sorry for higher petrol prices. It has been a burden on American households. And I think that even if it is not perfect, it is something that should be considered.”

Members of both parties have also expressed concern about the consequences of suspending the gas tax just months after Congress passed a $ 1.2 trillion law to improve the country’s infrastructure. Many federal road and highway programs are funded through a trust fund that stems from fuel tax revenue.

“Suspending the federal gas tax will not provide meaningful relief at the pump for U.S. families, but it will blow a multi-billion dollar gap in the highway fund and jeopardize funding for future infrastructure projects,” DeFazio (D-Ore.) Said, the chief said. legislator in the House’s leading transportation committee in a statement before the White House announced its request.

Republicans, who generally support tax cuts of any kind, rejected Biden’s proposal as an election year gimmick.

“This ineffective stunt will join President Biden’s second inefficient stunt on gas prices: to drain the strategic oil reserves we need in the event of a true national security crisis,” Senate Minority Leader Mitch McConnell (R-Ky.) Told the Senate. floor.

Republicans may also be reluctant to give Biden a victory in an economic issue that is deeply troubling to voters five months before the midterm congressional election.

But Robert Wolf, the former CEO of UBS Americas and an economic adviser to Obama, has defended the move, including during meetings last week in the White House with top officials. Wolf said he met with Ron Klain, chief of staff, Brian Deese, director of the National Economic Council, and Heather Boushey, a member of the Council of Economic Advisers, to discuss the gas tax holiday among other economic issues.

“There are only so many tools you have to combat the increased gas rises,” Wolf said. “Three things have happened at once that are truly events of once in a decade. We have a combination of the oil embargo from the 70s, the Persian Gulf War in the 90s and after the recession from ’08 to ’09. rose with all three and we have them all at once. We have really had the perfect storm. “

Wolf added that concerns about budget deficits for infrastructure projects could be allayed.

“We have already come up with trillions for covid aid and tens of thousands of billions for the Ukraine war,” he said. “You tell me we can do nothing for hard-working Americans at the gas station?”

Boushey, who defended the policy on Twitter, cited research from the University of Pennsylvania that found that consumers benefited from states that introduced a gas tax holiday, although the impact of a federal tax suspension would be more limited. “A federal gas tax vacation could help – especially if states follow suit,” she tweeted, sharing the analysis from the Penn Wharton Budget Model.

While a federal gas-tax vacation may be popular with drivers and may give Biden a small political boost, economists also say it risks exacerbating the problem. An artificial reduction in prices sends a signal to consumers to drive more, which can be a problem at a time when there is still a severe fuel shortage.

“We want fewer people to use less petrol because there is a shortage of petrol, and that will only encourage more use of it,” said Mark Zandi, chief economist at Moody’s Analytics.

He said he was “sympathetic to the problem they are trying to solve” but that a gas tax holiday is “very much on the margin” in terms of lowering gas prices.

It’s also unclear whether gas companies, which have been a regular target of Biden’s criticism over the past few months, will eat away at their own profits simply because the president says they need to give consumers relief at the pump. Energy Minister Jennifer Granholm is scheduled to meet with the oil company’s leaders on Thursday in a search for solutions to gas price increases, although Biden will not meet with the leaders in person.

Biden also tried to give the question a moral expression on Wednesday, attributing the rise in gas prices to Russian President Vladimir Putin’s war against Ukraine. “It was not just Putin’s invasion of Ukraine – it was the US and the rest of the free world’s refusal to let Putin get away with anything we have not seen since World War II,” Biden said.

And while a gas-tax vacation is not very effective, it’s important for Biden to convey that it has empathy with Americans’ struggles, his supporters said.

“I think they know it’s not going to have a big impact on prices,” said Dean Baker, a Liberal economist and ally in the White House. “It looks like you’re doing something, but it’s not right – I think they know.”

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Javed Iqbal

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