The latest consumer price index numbers (CPI) are in, confirming gasoline is now the single biggest contributor to rising inflation. Gas prices soared 18.3% in March to new record highs, which accounted for more than half of the total CPI increase for that month. The year-over-year CPI rose 8.5%, the largest yearly increase since December 1981.
In response, multiple states have issued temporary gas tax holidays to ease the pain for consumers at the pump. Maryland, the first state to do so, suspended the 36.1 cents per gallon tax for gasoline and the 36.85 cents per gallon tax for diesel for 30 days, by unanimous vote. Although the state enjoys a considerable surplus, the move is estimated to cost their budget nearly $100 million.
Despite interest from some Democrats, Congress is unlikely to interrupt the federal gas tax, set at 18.4 cents per gallon for gasoline and 24.3 cents per gallon for diesel. Republicans have criticized the attempt as an election-year stunt, while other Democrats, like Speaker Nancy Pelosi, have opposed the effort, arguing they do not want to divert funds from the Highway Trust Fund, which supports most federal spending on infrastructure and mass transit.
The Highway Trust Fund is financed largely through committed revenue streams, like the taxes on gas and diesel. However, dating back to 2008, these taxes have not been able to fully support the fund’s spending. Lawmakers have been reluctant to raise gas taxes, cut spending, or identify new long-term financing. In fact, the gas tax has not been raised in 29 years, falling increasingly behind year-over-year inflation.
Instead, the federal government has issued nearly $155 billion in general revenue transfers to support the fund, including a one-time transfer of $118 billion, authorized by President Biden’s 2021 infrastructure law. Before the law, the fund was projected to become insolvent in 2022.
Although the influx of money has delayed insolvency until 2027, the infrastructure spending package will increase highway and transit spending so much that it will effectively widen the fund’s long-term structural financing deficit. The fund is projected to accrue $44 billion in revenue through 2031, but will face a cumulative shortfall of $215 billion, worsening its 10-year solvency gap by 13%.
This creates a difficult policy dilemma – how does Congress help lower gas prices for consumers without worsening the expanding structural deficits in the Highway Trust Fund? The trucking industry, more than most, embodies this challenge, as an industry dependent on increasingly expensive fuel, as well as the conditions of our nation’s highways.
One approach for tackling this issue is to crack down on oil companies. Citing concern over gas prices, several high-ranking Democrats in the Senate announced, on April 28, new legislation that would give the Federal Trade Commission greater authority to combat price gouging. In return, oil executives have testified that energy prices are solely determined by supply and demand, and that accusations of price manipulation are politically motivated.
President Biden and lawmakers from both sides of the aisle have called for increased domestic oil production to help lower prices and insulate supply chains from global instability, like Russia’s war in Ukraine. However, they disagree on where to lay blame.
The Biden administration claims nearly 60% of issued federal land leases are not being used, along with 9,000 approved drilling permits. President Biden even called for Congress to legislate a “Use It or Lose It” policy, where oil and gas companies pay fees for oil wells on federal lands that go unused.
Meanwhile, Republicans and oil executives have criticized the Biden administration for not making it easier to drill on federal lands, citing the recent cancellation of the Keystone XL pipeline and saying it can take years and several legal battles to develop each lease.
But the truth is, politics aside, oil companies have long shied away from ramping up domestic production. About 15 years ago, the oil industry, understanding that they procured a finite resource, turned toward fracking to cut costs and increase production – so much so that supply eventually outstripped demand. Between June 2014 and July 2016, the price of a barrel of oil dropped from $100 to around $30. As a result, the oil and gas industry was ranked the worst performing sector on the S&P 500 stock index over the past decade, causing a push for ‘capital discipline’ that steered away from new, volatile projects and focused on stable, profit-proven oil ventures. Then, to top it off, the lockdown during the COVID-19 pandemic briefly sent oil prices negative, reaffirming cautious mindsets.
This is not to lament on behalf of oil companies – recent price hikes have provided billions in record-breaking profits for top oil firms in 2022 – but rather, to illustrate the increasingly precarious situation that is emerging. Soaring gas prices are raising inflation and hurting the economy, with no quick fix in sight. Suspending the gas tax would strip federal and local governments of much-needed infrastructure money, while efforts to increase domestic oil production may not be able to surmount cautious investing and climate considerations.
However, one thing remains clear, consumers and industries, like trucking, need a well-balanced and workable solution to lower prices now and prevent volatility in the future.