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Opinion
Karl W. Smith

A Gas Tax Holiday Would Be Nothing to Celebrate

Suspending the gas tax is generally a poor tool for combating rising prices, and it would be especially damaging now.

Proposing a holiday Americans don’t need.

Proposing a holiday Americans don’t need.

Photographer: Samuel Corum/Bloomberg

In a disturbing sign of just how much the White House has lost its way, President Joe Biden is asking both Congress and state governments to agree to a three-month suspension of the gasoline tax. Gas tax holidays are generally a poor tool for combating rising prices, but they would be especially damaging right now.

When the government passes a tax cut, it can’t control directly who benefits. The so-called incidence of the tax cut is determined by the forces of supply and demand. If demand is relatively fixed, then the tax will tend to benefit buyers. If supply is more inelastic, then more of the benefits will go toward sellers. The best the government can do is observe how the incidence of taxation lands in practice, then adjust policy accordingly.