Democrats Wrangle Over Gas Tax Holiday

By Yuval Rosenberg

Good Monday evening from New York, where it’s still light out now that we’re in daylight saving time. We haven’t filled out our March Madness brackets yet, so send your tips and picks to yrosenberg@thefiscaltimes.com. Here’s what’s happening on the fiscal front.

Democrats Wrangle Over Gas Tax Holiday

A plan to suspend the federal gas tax is gaining some support among Democrats, The Hill’s Alexander Bolton reports, though lawmakers are still divided on the issue.

Sens. Mark Kelly (D-AZ) and Maggie Hassan (D-NH) have proposed to suspend the 18.4 cents per gallon tax for the rest of the year, but the plan hasn’t gone anywhere in the Senate as some lawmakers express concerns about the negative effect the suspension could have on the Highway Trust Fund, which is used to construct and repair roads and bridges.

Last week, though, a half dozen Democratic governors sent a letter to Congress asking lawmakers to move forward with the proposal. “At a time when people are directly impacted by rising prices on everyday goods, a federal gas tax holiday is a tool in the toolbox to reduce costs for Americans, and we urge you to give every consideration to this proposed legislation,” the governors said.

In the letter — signed by Govs. Gretchen Whitmer of Michigan, Jared Polis of Colorado, Tim Walz of Minnesota, Michelle Lujan Grisham of New Mexico, Tom Wolf of Pennsylvania and Tony Evers of Wisconsin — the governors point out that the Senate proposal would replace the missing tax revenues for the Highway Trust Fund.

“The bill would authorize the U.S. Department of Treasury to transfer general fund dollars to replace the temporarily lost revenue of a halted federal gasoline excise tax,” they wrote. “Furthermore, the Infrastructure Investment and Jobs Act (IIJA) dedicated an additional $118 billion to the Highway Trust Fund, and the Trust Fund's capacity to finance the construction and maintenance of roads, bridges, and highways across the country would not be diminished by the legislation. For these reasons and more, we know it is possible to invest in infrastructure and also provide meaningful relief to consumers at the pump.”

Kentucky Gov. Andy Beshear (D) has also announced his support for the proposal.

Still, resistance among some Democrats to the proposal remains. Sen. Tom Carper (D-DE) says he doesn’t like the idea of using general revenues to replace lost gas taxes. And Sen. Sheldon Whitehouse (D-RI) expressed a concern that any reduction in the gas tax would end up padding the bottom line of oil companies. “I’m skeptical of it, particularly since the domestic production costs for oil and gas don’t seem to have skyrocketed, but the domestic oil and gas industry has taken advantage of the cartel-controlled world market prices to jack prices at the pump through the roof and pocket huge windfalls,” Whitehouse said.

The bottom line: While the political appeal is obvious, policy experts and others who have looked at the issue generally say that a gas tax holiday is a bad idea — or a terrible one — since it wouldn’t provide much relief for drivers while adding to inflationary pressures and undermining efforts to provide sustainable financing for the nation’s infrastructure needs.

House Dems Urge Biden to Revive Talks on Domestic Agenda, With Climate at the Fore

Nearly 90 House Democrats sent President Joe Biden a letter Monday urging him to restart talks on his stalled domestic agenda formerly known as Build Back Better — and to use the $555 billion in climate provisions from the House-passed version of the bill as the “building block” for negotiations.

From the letter, first reported by The Washington Post’s Climate 202:

“Given the widespread agreement in the U.S. Senate for House passed climate provisions, we have an opportunity to recommence negotiations with climate serving as a key starting point. … With your support, urging Congressional leaders to move forward with these climate provisions would mark the largest climate investment in our nation’s history, setting the United States on course to meet our 50-52% greenhouse gas emissions reduction targets by 2030, while creating millions of good paying union jobs, reducing energy costs for consumers, advancing environmental justice, investing in climate resilient housing and community infrastructure, and strengthening our economy.

The letter was led by Reps. Sean Casten of Illinois, Jamaal Bowman of New York and Nikema Williams of Georgia. “Bowman and Williams are members of the Congressional Progressive Caucus, while Casten is a member of the centrist New Democrat Coalition, illustrating the broad popularity of the climate provisions across the caucus,” the Post’s Maxine Joselow noted. She added that House Speaker Nancy Pelosi (D-CA) and House Majority Leader Steny Hoyer (D-MD) were among those who noably did not sign the letter.

The bottom line: A spokesperson for Sen. Joe Manchin, who scuttled the House-passed version of the Build Back Better bill and has continued to raise concerns about another large spending package, told the Post that the senator "has said repeatedly there have been no ongoing conversations" about reviving the legislation. “There is no Build Back Better,” Manchin reportedly said last week at an energy industry conference. He added that he has qualms about using the budget reconciliation process Democrats want to use to avoid a Republican filibuster: “The reason I had concerns from day one is that we shouldn't be doing that much policy. Reconciliation was never designed for us to do policy.”

Lobbyists Saw Record Revenue in 2021

The lobbying industry generated a record $3.7 billion in revenue in 2021, The Washington Post reported over the weekend, citing data compiled by OpenSecrets, a nonprofit that tracks money in politics. Lobbying spending last year rose by 6% over 2020 as companies and industry associations looked to sway lawmakers on trillions of dollars in pandemic spending and related regulations.

“Manufacturers, unions, financial companies and technology firms all spent significantly more in 2021 than in previous years, but some of the biggest increases came from industries most affected by covid,” the Post’s Jonathan O'Connell and Anu Narayanswamy noted.

The top spenders on federal lobbying in 2021 were the U.S. Chamber of Commerce ($66.4 million) and the National Association of Realtors ($44 million).

As lawmakers considered measures to lower drug prices, the Pharmaceutical Research & Manufacturers of America spent $30.4 million, up 17% from the year before and enough to place third on the list.

Also making the top 10 were health insurance giant Blue Cross/Blue Shield ($25.1 million), the American Hospital Association ($25.1 million) and the American Medical Association ($19.5 million).

Two tech giants facing intense scrutiny from lawmakers made the top 10 as well. Meta, the parent of Facebook, and Amazon.com spent $20 million and $19.3 million, respectively.

State Budgets Are Flush on Record Revenues

One of the great worries policymakers had when the coronavirus pandemic sent the U.S. economy spiraling into a recession in early 2020 was the inevitable flood of red ink at the state and local level that could drag on the ensuing recovery for years, as occurred in the aftermath of the Great Recession. But that worry turns out to have been unwarranted. As The Hill’s Reid Wilson reports Monday, many states are reporting surging tax receipts and record revenues as the economic recovery from Covid-19 gathers strength.

According to the National Conference of State Legislatures, 25 states now say their revenues will exceed projections this year, and another 17 say they would be on target. Sales tax revenues will come in higher than expected in a majority of states, with some states raising their estimates as the year goes on.

States have done “a total 180 from where we were at the start of the pandemic,” Erica MacKellar of NCSL told Wilson. “This quick rebound is really positive for states.”

One big factor in the unexpected growth in revenues has been the powerful but temporary federal aid delivered during the pandemic. In addition to record levels of direct aid to state and local governments, a variety of federal programs — including stimulus checks, enhanced unemployment, refundable child tax credits and small business loans — created a surge in individual incomes that helped generate record tax revenues.

Strong growth – for now: According to an analysis by Pew Charitable Trusts, many states have seen not just higher-than-expected revenues, but also rates of revenue growth that exceed pre-pandemic rates. Those increases, however, are expected to moderate as federal programs end and the bounce from reopening the economy becomes less pronounced.

Given the high variability of state revenues, which tend to wax and wane with the economy, some experts are advising states to be careful with how they handle their windfalls. Lucy Dadayan of the Urban-Brookings Tax Policy Center warns that the revenue surge could be short-lived, driven by the temporary aid programs and a short-term change in behavior as consumers focused more on goods than services during the pandemic.

Notably, that short-lived surplus in tax revenues probably won’t form a solid basis for tax cuts, as many states are planning. “This year’s large surpluses can quickly turn to shortfalls in the wake of permanent tax cuts,” Dadayan says.

Editorial of the Day: Covid Corruption

In an opinion piece Monday, editors at Bloomberg warn that President Biden must confront a corruption problem facing the government: misspent Covid funds.

“As Congress has doled out almost $6 trillion in relief funds, crooks and con men have lined up to get their share. They’ve created fake companies, stolen identities, invented employees, misstated their earnings, and otherwise conspired to siphon off taxpayer money. The Secret Service, which has opened more than 900 Covid-related criminal cases, estimates that $100 billion may have been misappropriated.
“Even that may be understating the problem. As little as 23% of the $800 billion doled out by the Paycheck Protection Program actually found its way into workers’ pockets. A Department of Labor study estimated that more than $87 billion in emergency unemployment benefits were improperly paid. The Small Business Administration has (among other blunders) disbursed more than $6.2 billion to loan applicants it now suspects of identity theft. Somehow, the Internal Revenue Service managed to issue 2.2 million stimulus checks — worth about $3.5 billion — to dead people.”

A large part of the problem, the Bloomberg editorial argues, is that the government watchdogs tasked with monitoring the pandemic relief efforts had to quickly set up the organizations, systems and tools they’d need, with flawed results. “As a start, a dedicated data portal that tracks big government outlays in real time would make it easier for officials to monitor for fraud and make more informed decisions about how to respond,” the authors suggest. They add that the programs must be better designed to stop incentivizing fraud — and that more attention and investment will be needed to ensure that more government money doesn’t end up in the wrong pockets

Read the full editorial at Bloomberg.

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