The Gas-Tax Holiday Is a Trap

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The Biden administration is under intense pressure as the universal loathing of inflation has unleashed public fury. The most salient increase is in gas prices.

They have doubled since inauguration, and the record highs have upended all summer travels, made work commutes unbearably expensive, and severely damaged family finances. The producer costs are all devastating for trucking, airlines, and everything else.

The intensity of the pain outstrips the overall consumer price index and also affects utility bills for all residential and commercial properties, busting budgets from coast to coast.

It doesnโ€™t help that the administration is on record, before taking office and at all levels ever since, in dreaming of the end of all non-renewable energy sources, and a conversion to a world in which we all live off the โ€œwind and the sunโ€โ€”a dream that effectively reverses most of the industrial achievements of the past 200 years.

Moreover, the Biden administration has repeatedly said that high gas prices have a silver lining, in that they spur a drive toward this great transformation. From everything โ€œlousy,โ€ Biden quotes his mother as saying, comes something good, in this case, the end of fossil fuels.

Letโ€™s just say that voters arenโ€™t on board with this dream. Nor does buying an electric vehicle somehow contribute to the dream of 100 percent renewables. For some reason, the Biden administration doesnโ€™t seem to understand that most electricity is produced via coal, not wind and sun.

Facing pressure, and realizing that blaming Putin isnโ€™t quite cutting it, the Biden administration thinks it has a solution. Itโ€™s calling for a temporary halt to the 18.4-cents-per-gallon tax on regular gas and a reprieve from the 24.4-cents-a-gallon diesel tax. It would have to be subject to congressional approval.

Letโ€™s say it happens. The economic unsophisticates in Washington will demand to see an instant fall in the retail price by 18.4 cents, simply because these people are clueless about how pricing works in a market.

Prices are always forward-looking while taking into account producer costs tracing back deep into the production structure. The formation of prices is never mechanical; itโ€™s always both retrospective and speculative, ultimately depending on complex relationships rooted in competitive structures, supply constraints, expectations, and demand elasticities.

Byย Jeffrey A. Tucker

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