Why Biden's 'Gas Tax Holiday' won’t reduce gas prices

Among the myriad catastrophes that Joe Biden is presiding upon, the gas crisis is among the foremost. 

The average cost of a gallon of petrol in the US is around $5 and around $6 in California. Under the Trump administration, the price was up from roughly around $3.

The crisis affects citizens directly at the gas station and indirectly as these prices affect the price of transportation which affects the prices of regular commodities. 

Joe Biden has called for a three-month suspension of federal gas tax in response to the country's soaring energy prices.

Currently, the US imposes a tax of around 18 cents per gallon on petrol and 24 cents on diesel. These taxes help fund the country’s transportation infrastructure, like highways and flyovers. 

After the tax suspension, the price of petrol will be around $4.82, which is still pretty high. In California, the price will be $5.82. It still is a long way from the roughly $3 during the Trump era.

What happens to the maintenance of the infrastructure? The federal government can certainly afford to direct other funds to this cause.

This will not be a solution to the problem. Also three months later, prices will return to where they were already. 

What Biden and his people do not understand is the principles that dictate the pricing of petrol or any commodity.

Prices are based on demand vs supply. 

Diamonds and coal are both, at their base, different forms of carbon. 

However, the pricing is drastically different.

The 59.6-carat pink Pink Star is also the largest known diamond in the world. It sold for $71 million. Why? Because it is truly unique. There is no other diamond like it and many want to own it. 

A piece of coal of the same volume as the Pink Star will cost almost nothing because it is available in abundance all over. 

The principle applies to every product, including petrol, the rarer the product the higher the price.

Cutting gas taxes does not boost supply, but instead, it increases demand. People all over the country will queue to fill their tanks to save some money. Since the demand is more the price will be hiked. Perhaps much more than 18 cents. 

This is how businesses operate.

An increase in the demand for petrol will mean higher profits for everybody including the owner of the gas station, the refiner, and the oil producer.

We also have an example of this failing on a state level.

At the beginning of the month, New York state suspended the 16-cents-per-gallon tax, this change will prevail till the end of the year. 

According to data from AAA, on June 1st the average retail price of gasoline in New York was $4.93 a gallon. Two weeks after the tax holiday went into effect, the average price in New York was $5.04 a gallon. The tax cut didn't help.

Biden recently said that gas rebate cards are one action his administration is considering.

Firstly the ongoing U.S. microchip shortage could make it hard to produce sufficient rebate cards and it could be difficult to prevent people from using the rebate money to buy something other than gas.

In fact like the tax cut, may increase demand as people will use their rebate money to buy fuel.

Biden could send more stimulus money to all American households which they are free to use anywhere they please. That will help to reduce the rise in the cost of living overall. But stimulus payments certainly contribute to inflation. When people have more money to spend, they spend it. That helps drive inflation higher.

A desperate Biden even wrote to gas companies that “At a time of war – historically high refinery profit margins being passed directly onto American families are not acceptable,” 

Chevron responded: “We share these concerns, and expect the Administration’s approach to energy policy will start to better reflect the importance of addressing them.

“Unfortunately, what we have seen since January 2021 are policies that send a message that the Administration aims to impose obstacles to our industry delivering energy resources the world needs.”

The bottom line is no tax muddling or grandstanding can reduce prices at the pump because it fails to address the supply vs demand issue.

When Biden took over on January 20, 2021, he signed an executive order that terminated further construction of the Keystone XL pipeline which would have transported 800,000 barrels of oil per day from Canada to the Gulf Coast. This was part of the Democrat green agenda, Biden wrote, “Leaving the Keystone XL pipeline permit in place would not be consistent with my administration’s economic and climate imperatives.”

Biden placed a moratorium on leasing federal lands to oil and gas drillers. He also increased restrictions on fracking.

Consequently, there is lesser oil within the US while the demand remained identical.

The result is the US which was an energy exporter under President Trump is now struggling and the price is rapidly rising.

Biden can change all of this rather quickly.

He can reopen construction of the Keystone Pipeline, permit fracking, and permit leasing federal lands to oil and gas drillers

But that will never happen. Biden’s ‘green energy’ puppet masters will simply not allow it. Biden’s low approval ratings mean he has no room to rebel against his party. AOC has already shown reluctance to endorse Biden in 2024. Any action drastic action on Biden’s part that is seen to go against the green agenda, and AOC along with many more may declare open war.

All Biden can do is financial trickery such as tax suspension, and grandstanding by sending open letters to the oil companies. He also continues to blame Putin.

It appears the suffering of the American people is unlikely to end anytime soon.

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