Biden’s gas problem: President eyes gas tax cut as pump prices soar

Joe Biden is a self-proclaimed “car guy,” loving to drive the green 1967 Goodwood Corvette Stingray he received as a wedding gift from his father, who ran Delaware’s largest Chevrolet dealership.

But cars – and the fuel that powers them – are now a problem for the president. Soaring gasoline prices, already at seven-year highs, are fueling broader inflation and threatening to derail Biden’s presidency, political analysts say.

On Tuesday, the White House said it could scrap federal gasoline taxes in a bid to provide immediate relief to drivers. The average price of a gallon of gasoline in the United States is now $3.50, an increase of almost 50% since Biden entered the Oval Office.

The tax break would effectively subsidize fuel consumption, analysts say — a surprising step for an administration that has been talking about ending tax breaks in the oil industry and weaning Americans off the combustion engine in favor of electric alternatives.

“The fact that we’re even talking about this shows there’s weak political support for decarbonization policies,” said Bob McNally, president of Rapidan Energy. “If you’re willing to kill 18.4 cents a gallon [tax] with minimal real impact on consumption. . . how on earth are you going to be willing to force consumers to adopt electric vehicles or more fuel-efficient cars? »

The fact that a president who has pledged to lead an American clean energy revolution and electrify the country’s cars is now trying to reduce oil consumption underscores the need to curry favor with drivers who will vote in midterm elections later this year.

“Over the past four decades, pump prices and presidential approval ratings have shown a significant inverse correlation,” said Kevin Book, managing director of ClearView Energy Partners in Washington.

“There’s not much Biden can say to fill a voter’s heart when it takes a Benjamin to fill their tank,” he added, referring to Benjamin Franklin, America’s founding father. whose image adorns the $100 bill.

Line chart of US regular retail gasoline, weekly ($/gallon) showing ... as well as gasoline prices

Biden also acknowledged that any conflict in Ukraine or any sanctions against Russia could drive up energy prices. “I won’t pretend it will be painless,” he said on Tuesday. But the administration was “ready to deploy all the tools and authority at our disposal to provide relief at the gas pump.”

If the tax cut is one of those tools, it would be just the White House’s latest step in taming rising gasoline prices and the fierce rise in global oil prices that drives it. Analysts say it is likely to be as ineffective as previous efforts.

The attempts began in August, when U.S. oil prices were trading around $70 a barrel, when Biden’s national security adviser Jake Sullivan called on Opec to pump more crude. Seven weeks later, Sullivan traveled to Saudi Arabia to repeat the call – another pivot for Biden, who had promised to make Saudi Arabia a “pariah” for his killing of Jamal Khashoggi.

The Saudis still rebuffed the calls. Biden and his officials also probed U.S. oil companies for price collusion at the pump — a move with a long political history, but a meager track record of success.

In November, the White House announced the release of oil from its Strategic Petroleum Reserve, a step criticized for being overtly political.

Biden took the credit for the softer gas prices that followed the SPR announcement, although the relief was short-lived. On Monday, US oil prices hit a new high of over $95 a barrel. Gasoline will also rise, forecasters say.

While critics have said the White House’s fixation on oil contradicts its climate commitments, some commentators say Biden is simply being pragmatic.

“Gasoline taxes are too politically charged to be a mainstay of climate policy,” said Paasha Mahdavi, a political science professor at the University of California, Santa Barbara. “It is giving up a political battle. . . in order to win a wider climate war, using political capital, gaining political support to put things like climate provisions and Build Back Better back on the legislative agenda.

Biden is not the first president to lash out at fuel price inflation, OPEC or oil companies — or fear the political fallout from expensive oil.

An energy price crisis was among the forces that undermined Jimmy Carter’s presidency. In 2007-2008, as global crude rose to its all-time high of nearly $150 a barrel, White House officials joined a parade of foreign leaders through OPEC capitals demanding more oil. .

Robust US gasoline demand has been another constant. In 2006, when George W Bush denounced America’s “oil addiction,” Americans burned 20.7 million barrels of oil a day. Demand this year will be almost identical, according to federal forecasters.

It has appeared easier for presidents to demand more oil – as Donald Trump has repeatedly done when lambasting Opec on Twitter – than to beat addiction.

It was Trump who in 2020 persuaded Russia, Saudi Arabia and other members of the OPEC+ producer group to cut supplies to prop up prices that had fallen so sharply they threatened to devastate the industry’s own American oil.

OPEC+ has steadily restored that oil, but not as quickly as Biden would like.

The forecourt price spike has also opened up easy lines of attack for opponents of Biden, with Republican leaders such as Sen. Mitch McConnell saying the administration’s “radical climate policy” is stifling national energy production.

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Despite soaring crude prices, U.S. oil production, at around 11.6 million barrels per day, remains well below the record high of around 13 million reached before the pandemic. Wall Street pressured companies to repay the capital rather than invest it in further drilling.

Perhaps Biden’s biggest problem with gas prices, however, is his limited power to shape them.

The gas tax relief “underscores how few tools the United States has to influence oil prices,” said Robert Campbell, an analyst at consultancy Energy Aspects.

“The fundamental problem for the oil market is that capital has been taken out of exploration and production, and demand has returned. Price needs to do the work to restore balance. A pre-election giveaway won’t change. this fact,” Campbell said.

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