In a disturbing sign of just how much the White House has lost its way, President Joe Biden
When the government passes a tax cut, it can’t control directly who benefits. The so-called incidence of the tax cut is determined
Consider the case of Maryland, which suspended its gas tax for a month last spring. Analysis suggests that consumers may have saved up to 26 cents per gallon — with another 10 cents captured by sellers. That extra 10 cents per gallon profit encouraged gasoline refiners to push more supply into Maryland instead of other states.
It was that extra supply, not the tax suspension, that lowered costs to Maryland residents. After the tax holiday ended, gas prices were higher in Maryland than in neighboring states.
If all 50 states and the federal government enacted a gas tax holiday, refiners would not be able to simply adjust supply from one state to another; they would just have to produce more gasoline. Yet a lack of refining capacity is precisely why US gasoline
Biden seemed to recognize this fact in a
Meanwhile, it’s clear that the administration would like to reduce demand for oil and gas over the next decade, potentially stranding any new investments that the industry makes. It’s precisely this mismatch between the White House’s short-term demands and its long-term policy that has made the entire oil and gas industry hesitant to expand.
If the White House were serious about addressing the issue of gasoline shortages, there are steps it could take — but it needs to be more creative.
One such idea comes from Employ America, a left-of-center think tank that takes the market seriously: The Department of Energy could work with the Federal Reserve to sell insurance to oil producers against falling prices. If demand for oil stays high, or if geopolitics takes more supply off the market, then the insurance will expire unused. If the demand for oil drops, the Department of Energy can take advantage of the lower prices to both refill and expand the US’s strategic petroleum reserve, thus blunting the price shock.
Instead, the administration is threatening refiners with antitrust actions, while congressional Democrats are mulling
If the Biden administration wants the oil and gas industry to produce more gasoline to bring down prices, then it will have to do something it seems loath to do: work with industry to put it in a more dominant position globally. That way, even as demand from the US falls, the industry can increase its exports. A three-month gas tax holiday would be the worst of both worlds — encouraging more domestic consumption precisely when production is at capacity, while doing nothing to help industry expand internationally.
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