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What a gas tax holiday could mean for your wallet

President Biden’s proposal includes suspending the federal gas tax for 90 days.

Gas prices have skyrocketed in recent months — prompting Americans to question what the federal government is doing to ease the pain at the pump.

On Wednesday, President Biden called on Congress to suspend federal gas and diesel taxes through September. He also called on states to suspend their own fuel taxes. Although the proposal is being met with opposition and has yet to pass, the holiday has important ramifications. Here’s what you need to know about the potential gas tax holiday.

What is a gas tax holiday?

Simply put, a gas tax holiday is a suspension on gas taxes. Some states, including Maryland and Connecticut, have already passed gas tax holidays, but Biden’s proposal is aimed at the federal level.

The goal of the holiday is to relieve the financial pressure on Americans created by high gas prices. The current federal gas tax is around 18 cents per gallon, and the current federal diesel tax is around 24 cents per gallon. These taxes have been in place for almost three decades. Revenue from the gas tax goes toward the Highway Trust Fund.

“By suspending the 18-cent gas tax, federal gas tax, for the next 90 days, we can bring down the price of gas and give families just a little bit of relief,” Biden said in his speech.

Why are gas prices so high?

With the combination of price of oil, refining, distribution and taxes, gas prices have largely been out of local gas stations' control. Each step of refining crude oil, which usually accounts for 60% of the price of a gallon of gas, comes with other costs including distributing gas to local stations. The Russian invasion of Ukraine has also contributed to the hike in prices.

High gas prices have had detrimental effects on businesses like restaurants that rely on deliveries — drivers have been struggling to break even or make profit, causing lost jobs. And one oil price expert said the prices are expected to continue to rise this summer.

How would Biden's gas tax holiday plan work?

At the most basic level, Biden’s proposal is targeted at lowering high gas prices. According to senior administration officials, the holiday could reduce gas prices by $1.

Biden’s proposal has also been called a political move by many. The holiday would end right before midterm elections, and inflation is a central issue for Democrats.

Why do some oppose a gas tax holiday?

Many have criticized the concept of a gas tax holiday because they think it's largely ineffective.

Garret Golding, a business economist at the Federal Reserve Bank of Dallas, told The New York Times he doesn't think the holiday would make a difference in the grand scheme of things.

"I don't think it moves the needle on people's willingness to buy more, and it doesn't exactly save them a whole lot of money, either," he said. "It sounds like something is being done to lower gas prices, but there's not a whole lot of there there."

Senate Minority Leader Mitch McConnell, R-Ky. has already shot down the concept, calling it a "silly proposal," making the bill unlikely to pass in the Senate.

Some Democrats have even expressed doubts. House Majority Leader Steny Hoyer, D-Md., said he supports the goals of reducing gas prices but questions the “intended effect in terms of the retail price and whether in fact it will save consumers money.”

Jason Furman, a professor at Harvard University’s John F. Kennedy School of Government and a former Obama economic adviser, fears the savings will ultimately be passed to the oil industry, not the consumer.

Other groups like the American Society of Civil Engineers have expressed opposition to the proposal fearing the effects of decreasing already-limited funding for highway projects.

What are some ways I can save money on gas right now?

If you drive, it's hard to avoid the sticker shock at the pump, but there are some ways that you can save money.

Buying gas on certain days has been shown to be cheaper, according to the GasBuddy app. The best tip is to do your research to ensure you’re buying gas from the cheapest gas station near you — every cent counts.