A Federal Gas Tax Holiday Isn't the Relief Americans Truly Need | Opinion

Americans are feeling the heat from record-high inflation virtually everywhere, but nowhere is it more apparent and unbearable than at the gas pump. As of this week, the average price for a gallon of gas in the U.S. is a whopping $4.80, with some experts predicting it could even top $6 by the end of the summer.

In an effort to ease the pain being felt by Americans on the road, President Joe Biden has recently called on Congress to enact a temporary federal gas tax holiday. This would briefly suspend the 18.3 cents per gallon tax that consumers pay on regular gas and the 24.3 cents per gallon tax that they pay on diesel.

While it's great that Biden wants to give consumers more financial breathing room, a federal gas tax holiday isn't the best way to do it. It might give Americans some minor relief, but not anywhere near the amount they actually need to meaningfully weather the inflation storm. Instead, the right path forward for Biden and Congress lies in addressing one of the root causes of rising fuel prices—corporate greed—by enacting a windfall profits tax on ultra-profitable oil and gas companies.

At the same time that Americans are paying record prices at the pump, the world's five biggest oil companies—ExxonMobil, Chevron, Shell, ConocoPhillips, and BP—are doing better than ever. In the first quarter of this year, Shell made $9.1 billion (its strongest quarter ever), ExxonMobil made $5.5 billion (double its profits from the first quarter of 2021), and Chevron made $6.5 billion (quadruple its profits from the first quarter of 2021). All in all, these five companies together netted an astounding 200 percent more in profits in the first quarter of 2022 compared to the first quarter of 2021—equivalent to almost 28 percent of what Americans spent on gas in the same period.

Oil companies may be facing increased production costs because of the war in Ukraine and global supply chain issues, but their ballooning profits clearly show that they are using the hype over inflation to raise prices above and beyond what is necessary. To add insult to injury, executives are using those profits to buy back billions of their own stock and enrich themselves, instead of investing in expanded production.

A federal gas tax holiday as proposed by Biden would not do anything substantial to tackle this behavior. Sadly, it would not even meaningfully help consumers either. According to a recent report from the Federal Highway Administration, the average driver would save no more than $8 a month with a federal gas tax holiday. And that is assuming that oil companies don't just return most of the savings to themselves. According to the Transportation Investment Advocacy Center, just 18 percent of state gas tax cuts have been passed down to consumers from oil companies over the past decade.

The best path forward to meaningfully tackle high prices at the gas pump lies in directly taking on price-gouging with a windfall profits tax on ultra-profitable oil companies. We can follow the recent example of the United Kingdom by taxing the billions in excessive profits that oil companies have made off the backs of consumers and redistributing them in the form of rebates to the most vulnerable, impacted households. This would send a strong message to oil companies that they cannot price-gouge with impunity and discourage them from further exacerbating the inflation situation in America.

Filling vehicle with gas
A person places the handle back on the pump after filling their vehicle with gas. Joe Raedle/Getty Images

Senator Sheldon Whitehouse (D-R.I.) and Representative Ro Khanna (D-Calif.) have taken up the mantle here with the Big Oil Windfall Profits Tax that they proposed in March. Their proposal would require large oil companies to pay a per-barrel tax that is equal to 50 percent of the difference between their current price for a barrel of oil and their pre-pandemic (2015-2019) average price. This wouldn't be unnecessarily punitive for companies operating fairly. Major oil companies would still be able to make billions in profits; they would just be taxed on anything above the already high levels they were earning just three years ago.

In a recent speech in Los Angeles, President Biden put oil companies' profiteering on blast, asserting that "Exxon made more money than God this year." Thankfully, he's acknowledged that their price-gouging is a problem. Now it's time for him to throw his support behind a real legislative solution like a windfall profits tax, not a gas tax gimmick that fails to provide any kind of lasting support for the American people.

Stephen Prince founded Card Marketing Services in 1993 and is vice-chair of the Patriotic Millionaires.

The views expressed in this article are the writer's own.