Photo: Getty Images/Adene Sanchez
Will a gas tax holiday drive retail in the right direction?
President Joe Biden is proposing a moratorium on the federal gas tax in hopes of saving cash strapped consumers from having to pay so much at the pump.
The three month tax holiday President Biden proposed to Congress would allow drivers to save 18.4 cents per gallon (24 cents per gallon for diesel), according to Sourcing Journal. President Biden has also called upon states to curtail their individual surcharges for the summer. State surcharges on gas average between 30 and 35 cents. Analysts say that every cent added or removed from gas prices impacts consumer spending $1.28 billion, in either direction, over a single year.
Rising fuel costs hit the consumer pocketbook not just at the pump, but in the aisle as CNBC reported in May. Higher fuel costs led to increased operational expenditures for logistics companies, which end up getting passed along to customers in the form of price increases.
Target CEO Brian Cornell said that the industry was caught off guard by the increased shipping and freight costs. Russia’s invasion of Ukraine drove gas prices, in part, to hit an all-time high in the U.S.
As fuel prices were beginning to spike earlier this year, some retailers took it upon themselves to try to ease the strain on customers with fuel-related promotions. In April, Krispy Kreme pegged the price of a dozen donuts to the cost of a gallon of gas, rather than the normal range of about $11 to $20. Bojangles announced a give away of $1 million in free gas in the form of $10 gift cards accompanying certain purchases. And Dunkin’ offered 30 cents per gallon off gas for Shell Fuel Rewards loyalty members who purchased their fifth drink.
Fuel prices have begun to come down in recent weeks. CBS News reported on June 28 that gas prices had fallen for two weeks in a row, with prices down nine cents week-over-week due to falling oil prices. Experts anticipate a third weekly price drop, but caution that any additional supply disruption can drive prices back up.
- Will Biden’s Proposed Gas Tax Holiday Help Retail? – Sourcing Journal
- Rising fuel costs are a massive problem for business and consumers — Here’s why they’re so high – CNBC
- Are fuel driven details worth pumping – RetailWire
- Gas prices decline in the U.S. for a second straight week as oil costs fall – CBS News
Discussion Questions
DISCUSSION QUESTIONS: Would a 90-day gas tax holiday remedy some or any of the supply chain issues and costs currently impacting retailers? How do you see retailers managing rising fuel costs in the long run should they continue to go higher?
Poll
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This may help a little, but it is really a drop in the ocean compared to the whole basket of inflationary pressures consumers are facing. The fact is inflation is largely a monetary phenomenon and there has been way, way too much money injected into the economy – not just over the pandemic but in the years preceding it. Coming off this high will be incredibly painful and protracted.
Exactly! Since 2008 the Fed has increased the money supply by $3 trillion. That is a more than a five-fold increase. Now we have an unsupportable flush of money chasing the same goods and services. Economics 101 says that kind of increase leads to inflation after inflation after inflation.
Relief at the pump has historically translated to increased spending in other segments of the economy, and I certainly have no reason not to think a tax holiday now would have the same impact. However I would caution us from expecting all of that windfall to go directly into retail coffers. I expect a large portion of the savings will be spent on experiences, rather than non-essential goods.
I think the gas tax holiday is a good idea. The effect on the supply chain will be significant for last-mile deliveries in particular. I think the natural reaction for retailers would be to pocket the gas tax difference, recouping some of the lost margin from the past few months. And I just hope the price gouging at every point along the supply chain will leave some savings leftovers for the end-consumer. “Too much greed is not good,” to modify a quote from the movie Wall Street.
There are many longer-term questions, too. Will gas stations lower prices more slowly once drivers start seeing prices back under three dollars, for example? If this is a 90-day experiment, what happens on day 91? Especially if gas prices have not gone down or have even increased? The psychology around this—beginning, middle, and end will be essential to how things pan out.
As in retail, once you “give” something to a customer, it is hard to take it away.
Would the tax really come back on day 91? Would politics, especially right before a mid-term election let it? I have my doubts.
But that is okay, I’ll take the savings … worry about the side effects later, I guess.
Given the wide swath of inflation issues across the economy, I suspect much of the windfall from this will go to other essentials that consumers are struggling to manage.
This generous gesture will stimulate short-term spending, yet it won’t solve complex supply chain issues. Rising labor and logistics costs and low availability will persist.
To manage rising fuel costs, retailers can use private labels, local sourcing and SKU rationalization. Price increases, returns fees, robotics, ad sales and process re-engineering can boost retailers’ power in a volatile market.
No. No is the answer. A 90-day gas tax holiday is like putting a Band-Aid on a broken leg. The real fix is in energy generation. The speed to green without an alternate reliable transition plan post-pandemic forced a higher rate of demand with a lower supply. Retailers will need to look for ways to bundle deliveries more efficiently, maximize container and truck space and ultimately pass along the costs to consumers — which is inevitable.
This is a drop in the bucket and most gas taxes are used to maintain existing roads in our states – we still need that. In the end retailers will not lower pricing en masse to make a difference. Other more substantial and permanent options are needed.
A gas tax holiday will not do much for retail. It is a 90-day reduction of 4 percent in gas prices which for the average consumer which will result in a savings of $5 to $10, a very small savings that most consumers will not even notice. It is a government gimmick to attempt to make people feel better which will drive up the federal deficit even more. And after 90 days, it will be gone. The best way to drive prices down is to create more supply which this government does not want to do. Retailers will attempt to manage rising fuel costs through more efficient supply chain management, trying to pass the increase along to the consumer in extra fees or partnering with oil companies on special arrangements.
I agree. The savings amount to $1.80 for the average 10 gallon fill up. It’s definitely nice to have but not an amount that allow consumers to go out and make the number of purchases that will resuscitate retail.
A federal tax holiday is nice. State tax holidays would even be nicer. But the real question is, what happens after 90 days?
I believe the only sustainable solution is to put a cap on what the oil companies can make per gallon. While all of us are experiencing the hurt, the oil companies will triple their bottom line in this windfall. Price controls are not a new idea. Price controls on fuel were last implemented in 1974.
For retailers, the problem is greater than a dozen donuts. Prepare for continued pressure. Understand that prices will not retreat and plan for that.
The fuel business has a lot of folks making money along the way. Go look at the margin per gallon for publicly traded convenience store chains; you will see that the recent fuel margin is over 30 cents per gallon to the station (that is before expenses, credit card fees, etc.). Those convenience store chains are not owned by the oil company. The truck that drives fuel from the local gas terminal to the station is not owned by the oil company. The terminal the truck gets the fuel from is not owned by the oil company in most cases, nor is the pipeline that moved the fuel from the refinery to the terminal.
Where I am going with the above is there are a lot of hands involved in the transport of fuel. To say the oil company can only make $X per gallon, it is not so easy. In the example above, after the refinery the oil company had no involvement but there were still a pipeline operator, terminal operator, fuel truck (jobber), and convenience store all taking their cut on that gallon of gas. Do you regulate a price control on all of them too? What if someone in the middle of this says I can’t make money anymore with this price control and downsizes or closes entirely? Then there will really be problems. I guess the government could try to force them to act with an “emergency powers act.”
There have been no new refineries in the US since the 1970s and you can’t put a refinery up overnight. We made our bed, and have been making it over many decades, and now we are sleeping in it. Or paying for it.
Paying for it.
Anything that will put a few extra dollars into the pockets of those who need it, is a good thing. Save on gas (taxes) and spend the money on food, clothes, etc. Seems like a good idea. Let’s see if this stimulus effort works.
It’s a nice assist. Will it buy enough time for retailers to sort out better ways forward while also allowing gas prices to adjust back down (nothing is forever after all)? We shall see. Smart retailers will make use of it and thrive.
As others have stated, lower prices at the pump have historically put more money in consumer pockets and boosted spending elsewhere which should help a little. It should also reduce some of the supply chain expenses retailers are facing which could mitigate or hold off some future cost increases. One segment of retail that could benefit from this more than others are convenience stores as lower prices in gas will lead to more travel and traffic. It will also reduce costs for truckers which are a key customer segment. Coupled with some BTS tax holidays, it could lead to some higher demand days for some segments. Ultimately, it won’t solve for inflation or high gas prices which are based on larger economic challenges and disruptions which retailers have been adapting to and will need to continue to adapt to.
First of all, sure $4.85 a gallon is better than $5.15 or whatever but you’d have to cut the cost of gas a lot more to compensate for the other economic forces impacting consumer spending — recession, inflation, rising interest rates, and a probable increase in the unemployment rate as the Fed tries to forestall full blown inflation. Add to that that we have no idea when, or if, the Russian incursion will end, the fact that, despite all the denial, the global COVID-19 pandemic isn’t over and we are heading for prime viral season, the erosion of 401Ks, IRAs, and other personal retirement plans and the picture isn’t what you could call rosy for consumers. As to what retailers can do there are some supply chain efficiencies, some technologies that can help a little, but in the main if fuel costs continue to rise they really only have two bad choices; take a hit to sales and margins or pass the additional cost on to the consumer. With respect, the President’s plan is like applying a Band-Aid to a gaping wound and praying it will hold.
The three month gas tax holiday is similar to tapping the strategic oil reserve. It won’t work. And if consumers save a penny or two, it will go towards critical purchases for a family rather than nice-to-haves. Neil and Gene are spot-on with how we arrived at incredibly high inflation. The more prudent approach would be to: 1.) open up U.S. energy production to drive the price of oil and gas down, which affects nearly every aspect of the manufacture-distribution-retail-consumer ecosystem spectrum of costs AND 2.) tamp down spending at the federal level, which will reduce the amount of federal dollars pumped into the markets. There are many other levers to pull, but these two would provide the quickest, most positive counters to rising consumer prices.
No! While surging fuel prices are a major contributor to overall inflation, the issue is basic supply and demand. Either we increase supply, or destroy demand. Increase supply will take investment. But oil companies have been unwilling to risk their capital, and regardless, this take years to create any benefit. So it’s about demand destruction. Lowering the tax/price will only fuel demand and further price increases to offset any tax benefit.
It’s a short term measure that may give people who are suffering most a small reprieve, which I expect them to spend on essentials. It will not resolve the longer term supply chain and inflationary problems.
A temporary band aid at best, and it will hurt taking it off. If fuel/energy prices continue to increase, retailers will first pass costs onto customers in the form of higher product costs. They’ll then begin looking at lowering costs and finding ways to rely less on gas — e.g. electric fleets, renegotiated supplier contracts, etc.
An acquaintance experiencing hard times financially says it like this — “An 18 cent tax holiday will save me $3.00 at fill up. What I need is a $30 savings at fill up. Government needs to solve this.”
A small savings in gas prices isn’t going to be enough to help customers who need to provide for their households.
Retailers likely won’t see much of this and the supply chain won’t be impacted in any meaningful way. But they will continue to make smart decisions until we have some relief.
Please: pure theatrics … at their worst.
Utility prices are going to be rising in July in some states and grocery stores continue to make price increases on many items on a weekly basis, often 5-10% in one swoop.
I will take any “relief” they want to provide, but moving gas from $4.90 national average to $4.70 national average isn’t going to tip the needle much for anyone. I will certainly appreciate the savings, but fear they will, you know, “get that tax back from us” somewhere else.
Also that gas tax money is supposed to go to fix the roads. What is the plan to alleviate the ongoing funding shortfall that program has? Print more money from another big Federal spending program? Wait, that is part of what has caused this inflation mess in the first place. Also you can bet the costs to repair roads now and in the future will be rising well above previous forecasts along with the wild inflation we have, so stopping the gas tax will only make the situation that much more dire for the highway repair fund. But they can just print more money to deal with that, right?
Also hoping underfunding that highway repair fund doesn’t lead to more car damage/tire replacements due to the road maintenance being deferred even more than it already is. That will certainly eat up $3 a week of gas savings quick. Maybe if you’re lucky you’ll get off with just an alignment, but the cost of an alignment is higher than the 9 weeks of gas savings at $3 a week would save the consumer….
And I guess the consumer who has just saved $3 on their weekly fill up will now go spend that $3 at a retailer. So that is a win for the industry, I guess. Hopefully the customer can afford a bookmark or something with the $3….