Frist Drops Gas Rebate Plan Amid Outcry From Business Lobby

by Leroy Baker, Tax-News.com, New York

03 May 2006

Lawmakers have been left scratching their heads over how to provide American consumers with relief from climbing gasoline prices, after a bill to provide a gas tax rebate was scrapped on Monday following an outcry from business groups.

Under the 'Gas Price Relief and Rebate Act,' single taxpayers earning up to $145,950 and married couples earning up to $218,950 would have received a $100 rebate in August. The rebate was to have been funded by changing the way that businesses treat inventories for tax purposes, known as 'last in, first out' or LIFO, effectively causing them to pay more in tax.

Initially, the change, which had been approved by the Senate but faced strong opposition in the House, would have applied to only the five largest oil companies.

While the oil companies naturally lobbied hard to prevent the bill going into effect (the accounting change would have increased their taxes by an estimated $4.3 billion over five years), it was Senate Majority Leader Bill Frist's plan to expand the tax to another industries that provoked sufficient outcry from the business lobby, including the National Association of Manufacturers, for Frist to jettison the proposals from a wider energy package.

Other features of the energy package included measures against price gouging, incentives to expand domestic oil refinery capacity, support for new energy initiatives and tax incentives for buying hybrid vehicles.

However, as the average cost of regular grade gasoline nationwide recently increased to $2.92 a gallon, with some paying more than $3 a gallon, reports suggest that the Republican rebate proposal garnered surprisingly little support from the general public, with many writing to their Senators to complain that the plan was a once-off 'band-aid' that failed to address the root of high gas prices.

Even some Republican supporters have opposed the plan.

“Political anxiety in an election year is to blame for a lot of the bad bills Congress passes,” commented Republican Congressman Jeff Flake of Arizona. “I hope that we don’t add gimmicky legislation regarding gas prices to that pile.”

“Voters will surely see through knee-jerk populist ideas like gas rebates, and they'll understand that a gas tax holiday that doesn’t return transportation authority back to the states or include a commensurate cut in federal transportation projects will simply add to the deficit," he added.

President George W. Bush has also previously intimated his opposition to the accounting change, and has in the past threatened to veto the measure.

The Democrats meanwhile, favor a gas tax "holiday" that would suspend the 18.4 cent per gallon gasoline tax for 60 days in a move that would cost $6 billion in lost revenues. However, critics of this plan contend that there would be no incentive for gas retailers to pass on the saving to consumers.

Frist, who says that the Republicans are "moving aggressively to address (the) concerns” of motorists, has expressed his continued support for the rebate, but has indicated that an alternative method of funding it will be sought.

However, the proposal has been shelved until later in the year when, according to Frist, "the pluses and minuses of the provision can become well-known".

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