IU economist says Biden’s gas tax holiday won’t solve the problem

INDIANAPOLIS (WISH) — An economist at Indiana University says the proposal to suspend the federal gas tax likely won’t make that big of a difference to drivers.

“It’s really not a great policy,” Kyle Anderson, an associate professor of business economics at the Indiana University Kelley School of Business, said. “It likely won’t lead to much reduction in the price of gasoline.”

President Joe Biden’s plan aims to suspend the federal tax on gasoline and diesel fuel for three months. The federal tax is 18 cents per gallon of regular gasoline, and 24 cents per gallon of diesel, but according to Anderson, the gas tax holiday won’t solve the problem. That’s because the supply of gasoline is at full capacity.

“Our refineries are working fully and demand is very high, and so, prices are higher and suspending a tax won’t really increase production and it won’t reduce demand, so it’s unlikely to have much impact on the current price of gasoline,” Anderson said.

Biden is also asking states to suspend their gas taxes. According to Anderson, that would make a bigger impact in Indiana, but it would not provide much relief.

“We might see prices go down by say, 20 or 30 cents per gallon, which is significant, would help somewhat, but the trade off with that is the state would lose a lot of tax revenue that would probably have to make up in some other area,” Anderson said.

Meanwhile, some residents are afraid that could actually backfire on the economy. “What I’m afraid of is it’s going to be, it’s going to add to the issue. Just kind of like when we had those stimulis checks issued out, everybody thought it was going to be a great little help, but then it comes back to get you eventually,” Logan Carothers, an Indianapolis resident said. “So, it’s give and take here and there.”

“I would like to see, you know, the governor suspend the tax on Indiana because it’s a lot,” Miguel Lopez, an Indianapolis resident said.

Lopez travels a lot for work and with gas prices on the rise, he’s forced to pay over a hundred dollars every three days to fill up his truck.

“It has hurt a lot. It seems like it don’t, but it hurts. You know, you notice the difference on the bills,” Lopez said.

So what would drive down gas prices? Anderson says a recession.

“Hopefully, we don’t have something like that happen again, but that’s one way that gas prices tend to fall is though an economic slow down,” Anderson said.