Gas prices: Biden to ask Congress to pause gas tax for 3 months

Yahoo Finance’s Rick Newman joins the Live show to discuss reports that President Biden will ask Congress for a three month pause on the federal gas tax.

Video transcript

BRAD SMITH: Welcome back to Yahoo Finance Live, everyone. President Biden plans to ask Congress for a three-month pause on the federal gas tax today. While the administration estimates this could save drivers up to $1 per gallon, skeptics say, ultimately, that is up to the oil companies to decide. Joining us with more on this is Yahoo Finance's Rick Newman. Rick, first and foremost, the likelihood that this goes through.

RICK NEWMAN: Slim. Many Democrats don't like it. Nancy Pelosi, the House Speaker, has called it a gimmick. Joe Manchin, who seems to be the guy who kills everything, doesn't like it as well. And it doesn't seem obvious that Biden could get many Republican votes for this. So it's a gesture, I think, Brad. Biden needs to show voters he's trying to do something about gas prices that are extraordinarily high at around 5 bucks a gallon. But I don't think he's going to get action on this, which might be a good thing because policy analysts kind of hate this idea.

JULIE HYMAN: Yeah, I mean, and that's for, among other reasons, one of the things that we spoke about yesterday, which the concern is, is that if you get rid of the gas tax, if it helps at the margin for consumers, it also could help buoy demand, or at least, support demand, which then feeds into the prices staying higher for longer potentially. And it also goes-- the president has been talking about and sort of being critical of the oil industry. But this is something that could help their profits, right?

RICK NEWMAN: Right, so if you suspend the federal tax-- and let's be clear about this. The federal tax is only $0.184 per gallon. It has not been raised since the early 1990s. So you mentioned that $1 figure. I don't know how you get to savings of $1 per gallon by suspending a tax that's $0.184. I mean, anybody can do the math on this. Let's say your car takes 15 gallons of gas. If you save-- if you get all of that savings, $0.184, that's about $2.75 per fill-up.

And there's no guarantee that all of that suspended tax savings is going to flow through to consumers. That tax is assessed at the wholesale level. So it's possible that, at the wholesale level and then the retailers selling the gas, they may try to keep prices up just to nab their share of that little windfall, with maybe some portion of it going to consumers. There's been some states have suspended their gas taxes, which tend to be higher than the federal tax.

And there have been some-- there's one study by the Penn Wharton budget model on this. They found that around 75% of the savings went to consumers. The other 25% went to other-- the providers in the supply chain. So you probably wouldn't even get the entire $0.184. You might get $0.12 or $0.15 of savings per gallon. So think about that bringing the cost down from $5 to, let's say, $4.85. Is that really going to make a difference to many people?

BRAD SMITH: And how, I guess, if it does go through, would it be enacted? Would it be in the form of a rebate? Or would it just be something that is coming in the form of waived fees at the pump?

RICK NEWMAN: Nope, the government just stops collecting the tax at the wholesale level. So that means-- that does not affect the price of oil one bit, so oil still costs the same amount because this is a tax on the refined product. And we would also be talking about diesel here. That's important because diesel prices have gone up even more than gasoline prices. So if the government stops collecting the tax and Biden wants to do this for three months-- and then it goes through the system. So the wholesalers stop paying the tax. The idea is their costs go down by a little bit. And they eventually pass the savings on to consumers.

JULIE HYMAN: Well, we'll see what ends up happening with this and whether the president does get any political credit for, at least, floating the idea. Thanks so much, Rick. Appreciate it.