Democrats eye federal gas tax holiday amid high prices

Yahoo Finance Live's Akiko Fujita and Brian Cheung discuss gas tax revenues and rising gas prices as concerns of U.S. inflation grow.

Video Transcript

AKIKO FUJITA: Well, if you've had to fill up gas recently, you are feeling, like everybody, the pain at the pump. Some Democratic lawmakers are looking to suspend the federal gas tax as the average price hits $3.50 a gallon nationwide. That is $1 more than a year ago, at least according to AAA.

But the Committee for a Responsible Federal Budget warns a freeze could end up aggravating inflation more and reduce gas tax revenues by roughly $20 billion. Brian, I'm curious to get your thoughts. We're talking, what, $0.18 a gallon for the year in terms of how much would be reduced?

BRIAN CHEUNG: Yeah, so the tax holiday would not reduce gas prices that you're paying at the pump by $1. Let's just kind of get that out of the way. The estimate is that the federal gas tax is about $0.18. And in fact, in many cases, states have a larger gas tax than the federal government does. And this is just covering the federal government, this proposed holiday, which, again, remains to be seen if this will actually get done.

But again, this is all about inflation, right, making sure that the $0.18, which could be impactful for a lot of low income Americans, will hopefully alleviate their costs on a monthly basis and be able to allow them to spend on the things that they need to spend on that are getting more expensive. But there's kind of a bit of a self-fulfilling cycle here, where if gas prices are lower, maybe people increase their demand for stuff. And demand push is a big reason why inflation is as high as it is.

So the jury's still out from an economic standpoint about whether or not a federal gas tax holiday, which would be temporary, would actually do the job of quelling inflation. So I think that this is more just kind of posturing from the White House to say, hey, we're paying attention to this. But again, important to note that it's really not so clear that if this actually gets done, it will have the ultimate impact at the White House might want it to.

AKIKO FUJITA: Well, underpinning all of this is just the political headwinds that Democrats are facing right now, going into the midterms, especially as consumers, they're not looking at the inflation number per se. They're just looking at what they're having to pay in gas and food.

And that has really translated to pressure on the White House, as we've seen the president's numbers, approval ratings fall, as we see the inflation numbers tick higher. So in many ways, lawmakers who are in these more vulnerable districts, you know, certainly want to be seen as doing something, saying, we hear you. We understand the pain. We're making some moves.

But to your point, I guess the question is, how much of an impact is that really going to have? And that seems to be what we saw last year, when the White House tapped into Strategic Petroleum Reserves. And, you know, at the time, it was, OK, this is great, but, you know, two months from now, three months from now, how big of an impact is that going to have? We're still seeing those prices go up.

BRIAN CHEUNG: Yeah, and I think thematically, this also fits with, you know, the White House has messaged that a lot of these price increases are due to anti-competitive behavior and strong pricing power. But I mean, we know that anti-competition is something that's not going to get done overnight.

And in the immediate problem of high inflation now, I don't think we should expect any sort of pro-competition agenda to immediately be done to address these price pressures. And I think this is why in conversations that I've had with administration officials, they're saying, really, a lot of this falls on the Federal Reserve. And it's difficult for them to outright say that because they want to respect the Fed's independence.

But the only agency that has the blunt tool to be able to, on the aggregate, address price increases is higher interest rates, higher borrowing costs. Very important, ahead of later this afternoon, the Senate Banking Committee is supposed to hear the five nominees for the Federal Reserve from the Biden administration that will have a key hand in addressing those things. Reports now about whether or not the Republicans might want to kind of hold up one of those nominations, Sarah Bloom Raskin, for the vice chair of supervision role.

But these will be very key people in the argument over how the Federal Reserve, how aggressive they should be in raising interest rates. And I think that's really going to be a part of the focus for not just the later parts of this year, but really, right now. The next three months, the spring of this year is going to be extremely critical in getting those CPI PCE numbers down.

AKIKO FUJITA: Well, and Brian, bringing it back to the price of gas and, you know, how significantly that affects consumers and also lawmakers because the finger pointing goes in that direction, you know, you mentioned we're talking about the federal gas tax now. Obviously, states have their own tax. California one of the highest, if not the highest. The governor there, Governor Newsom has also proposed a holiday.

So this is clearly something that so many lawmakers not just on the federal level, but at the local level are facing a lot of pressure on. So it'll be interesting to see how quickly these things move, as people continue to say, look, why is it that I'm paying this much more than I did a year ago every time I fill up?

BRIAN CHEUNG: Yeah, we were joking about people flying into LAX and seeing those gas stations that are immediately around that area. It's like $6, $7 a gallon. Sometimes, though, of course, that could just be the proximity to the airport, in addition to all of those other factors. But don't gas up at those gas stations by the airport. Just drive a little bit inland.