President Biden suggested that the United States implement a Federal Gas Tax holiday to help consumers weather historically high gas prices. Gas prices doubled in the United States between February 2021 and June 2022, topping out at more than $5 a gallon before falling back somewhat in July 2022. While the gas tax holiday idea has been widely critiqued by experts as short-term policy that exacerbates the imbalance between supply and demand, it remains a popular idea.
Understandably, leaders like President Biden are feeling pressure to provide constituents with some relief. But there are more effective, sustainable solutions that can help consumers immediately.
Treating the Root Cause of High Gas Prices
Sudden and sustained spikes in energy prices are a real pocketbook problem not just for individuals, but for the economy in general. Expensive oil makes all kinds of interactions more costly because nearly every part of the American economy depends on it.
Painfully high gas prices are a symptom of this overdependence. While supply constraints have been the focus of recent discussions, higher prices also reflect inelastic demand for oil. In a country with large vehicles, car-dependent land use and limited public transport, the average person currently has few alternatives to a gas-powered car for most trips. In this environment, sudden increases in gas prices can be politically, and sometimes personally, devastating. Politicians then feel pressure to respond with an expedient solution, even if it won’t create the change needed.
Policymakers in Congress and the Biden administration can break this cycle.
The long-term goal for policymakers should be implementing systemic changes that make clean transportation options available to everyone. People are more willing to reasonably adapt their transportation preferences when safe, alternative options are easily accessible. A framework to achieve this goal is the “Avoid-Shift-Improve” model. This framework aims to avoid extra vehicle miles travelled, shift car trips to alternative modes of travel, and improve the efficiency and quality of transport.
By implementing this framework, policymakers can build communities where residents have easier access to the people, places and things that matter to them, while lowering the need to travel far and increasing options to travel sustainably. The most effective solutions are long-term projects, including increasing housing density, building “complete streets,” improving public transport systems and electrifying vehicle fleets.
4 Ways to Provide Immediate Relief from High Gas Prices
However, there are also “quick wins” that Congress and the Biden administration can implement immediately to provide people relief from high gas prices today, while supporting the systemic Avoid-Shift-Improve changes needed in the long term.
Here are four solutions to provide immediate relief from high gas prices:
1. Low Cost and Improved Public Transit
The federal government could support a deep discounting of public transit fares for a limited period through additional funding via the Federal Transit Administration. Doing so would help consumers in many urban areas avoid high gas prices and provide an incentive for people to return to mass transit after plummeting ridership during the COVID-19 pandemic.
It’s happening elsewhere: Germany introduced a new low-cost farecard that covers all transit except high-speed rail nationwide for the summer, effectively creating a single nationwide fare structure for the first time. A similar pass for U.S. local transit, also extended to Amtrak, could help rebuild ridership habits and incentivize inter-agency cooperation, a positive long-term outcome. While receiving this federal support, agencies could also negotiate new bulk pass programs to help keep public transit pass prices low after the temporary support ends.
This is an especially impactful moment to do this. Transport habits are sticky, and due to the pandemic-induced shake-up of the job market, many people are still adjusting to new circumstances. An incentive to take transit again can pay off in city and regional networks working to regain ridership. Similarly, investing now to improve the frequency and speed of public transit can attract new riders and help reduce car dependence long-term.
2. Expand Pre-Tax Commuter Benefits into a Sustainable Transport and Equity Account
In many workplaces, workers can set aside pre-tax dollars to pay for local transit. These funds are often narrowly assigned to cover the journey to work via the local transit agency’s monthly pass, with funds expiring at the end of the year. These programs have historically benefitted middle-wage white collar workers, but with a few tweaks to their design, they could expand to cover any taxpayer.
For example, the program could be modeled after the non-expiring pre-tax Health Savings Account, but with a focus on sustainable transport. Funds in a “Sustainable Transport Savings Account” could be used to pay for public transit, Amtrak, bike shares, or bicycle or electric vehicle purchases. Importantly, this can also be an equity tool for providing increased benefits to low-income households, who could apply the funds to a greater range of transport expenses.
3. Improve Electric Vehicle Incentives
The U.S. government’s current incentives to buy electric vehicles (EVs) are limited to 200,000 EVs per manufacturer and designed to ease the administrative burden on the government rather than improve access for consumers. These tax credits are only available for new vehicles, are not paid in-full to the consumer if their tax is less than the credit, and are only realized once yearly taxes are filed. Converting these credits to point-of-sale rebates for moderately priced electric vehicles would make this gas-free option accessible to more car buyers while putting downward pressure on gas prices for all consumers.
The good news is the Inflation Reduction Act, introduced in the Senate on July 27, 2022, would accomplish this by lifting the per-manufacturer cap and allowing an eligible consumer to assign their credit to the auto dealer, which would let them realize the value of the credit as a discount at the point-of-sale. The bill would also provide a tax credit for used EVs and set income and maximum vehicle price limits for eligibility.
However, there is room for improvement. Most notably, there is no federal incentive to purchase or replace vehicles with e-bikes, which can offer tremendous ease and utility for short trips.
4. Encourage Work from Home
Having just come through a two-year (and counting) period where people worked from home for public health reasons, the federal government could incentivize companies to allow staff to continue teleworking for climate change reasons. A campaign to keep and expand teleworking for those who want to would help companies delay or lessen return-to-office plans that are increasing demand for gas-powered car trips.
Unlike during the height of the pandemic when the consequences were deadly, this new phase of telework would be more carrot than stick for both companies and workers. The federal government could lead the way by returning work-from-home privileges to its own workers who are able to do so. To go further, the government could fund research to understand the benefits, limitations, and best practices on remote and hybrid work environments to shape long-term policy.
The Biden Administration and Congress Should Seize the Opportunity to Build a More Sustainable Transport System
When a pocketbook issue suddenly becomes a crisis, lawmakers face a choice: They can respond with short-sighted and sometimes even long-term harmful policies, or they can enact solutions that deliver real benefits to people. Gas prices are volatile and will continue to be buffeted by global supply disruptions beyond any single government’s control. The only way to fully insulate consumers and economies from this volatility is to build a sustainable transportation system that does not depend on oil. This includes electrification, reducing trip distances, and creating more infrastructure that supports active and shared mobility.
Though advancing systemic changes is nearly always the best course of action, the political calculation in a crisis requires that those changes are coupled with quick wins to help people immediately. Rather than pursue a gas tax holiday that would have minimal impact in the best scenario, President Biden and Congress should implement the ideas above to ease the pressure of high transport costs now while laying the groundwork for a more sustainable future.
Adam Davidson is a Senior Associate with the Urban Mobility Team at WRI Ross Center for Sustainable Cities.
Dan Lashof is Director of WRI United States.