Gas prices are high. Here’s why

Opinion by Mark Wolfe for CNN Business Perspectives

With Covid-19 vaccines now widely available in the United States, Americans across the country are eager to get back to work and to visit loved ones that they haven’t seen in more than a year. But the skyrocketing price of gasoline will make these endeavors more expensive than they have been in years.

According to the US Energy Information Administration (EIA), gasoline prices are now at their highest level since 2014. Since January of this year alone, they have increased from $2.33 a gallon to $3.23 a gallon. And all signs point to higher prices to come. The price of crude oil, the base product for producing gasoline, keeps rising. Meanwhile, the Organization of Petroleum Exporting Countries (OPEC) and its allies dither about increasing production to meet the growing demand for oil.

While oil producers in the US will benefit from increased prices, the impact on low-income families will be significant. Many of these families are struggling to pay for basic needs, including food, medicine, utility and rent bills. Last month’s Census Household Pulse Survey reported that about one out of three families with children have found it difficult to pay their household expenses in the last seven days.

With overdue bills already hanging over their heads, gasoline price increases will make it even more difficult for low-income families to get back on their feet. While there is significant federal funding available to help families pay their rent and utility bills, it’s not enough. And now these families will have to set aside even more of their income for gasoline, making it even more difficult for them to pay for back rent and overdue utilities.

For many low-income households, cutting back on car use is not an option and gasoline is an essential good. They do not use their cars to go on vacations. They use them to drive to work, buy groceries, go to the doctor and make other essential trips.

Long term, there are many policy opportunities to mitigate the impact of high gas prices. Increased investment in infrastructure to reduce congestion on the roads would reduce commute times and therefore gas usage. The addition of affordable public transportation to provide alternatives to car commuting would make low-income customers less vulnerable to temporary changes in gas prices. And the transition to electric vehicles, and renewable energy sources to power them, would reduce our country’s dependence on fossil fuels and the whims of OPEC.

In the short term though, the federal government can play an important role in making sure low-income families are able to afford rising gas prices. President Biden, in particular, can push OPEC countries and their allies to ramp up production, which would relieve some of the upward pressure on oil prices. Production is down from about 29.3 million gallons a day in 2019 to 25.5 million in May. And Goldman Sachs recently released a report stating that there is a global shortfall in the markets by 5 million barrels per day. Low-income families should not have to cut back on daily necessities because petroleum-producing nations cannot agree on production increases.

Congress also has some tools at its disposal that could help struggling families pay their gas bills. The simplest tool would be to add funding to the Earned Income Tax Credit (EITC) until gas prices return to their 2019 levels. The EITC provides refundable tax credits to low-income families who file their taxes with the IRS, so there is no need for them to directly apply for separate federal assistance. Credits could be increased for 2020 filers by $500 to help these families pay their higher gasoline bills this year.

A second option would be for the federal government to provide an additional $500 to a family’s Supplemental Nutrition Assistance Program (SNAP) benefits by adding it to their Electronic Benefit Transfer (EBT) card so the funds become immediately available. While the funds could, of course, only be used for food purchases, they would free up funds that a family would otherwise use for food to pay for the additional cost of gasoline.

Rising prices for gasoline, while painful for consumers in the short run, reflect the economic recovery we have been waiting for. But low-income families are the least able to absorb the “pain” of these prices and should be protected so they don’t have to choose between paying for essentials, such as food and medicine, and paying for gasoline.

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