States consider gas tax pauses as prices spike

Source: By Reid Wilson, The Hill • Posted: Wednesday, March 16, 2022

States consider gas tax pauses as prices spike

Governors and state legislators are considering moves to suspend state gas taxes as the cost of fuel continues to soar to record levels, a bipartisan effort that comes as high prices hammer household budgets across the nation.

Maryland legislators have fast-tracked a bill to suspend the state gas tax for 30 days. The Democratic-controlled General Assembly plans to send the bill to Gov. Larry Hogan (R) by the middle of the week, after Hogan and legislative leaders reached a deal.

In Georgia, a state House of Representatives that has spent months bitterly divided over everything from voting rights to gun policy and tax reform came together to unanimously approve a gas tax suspension through the end of May. Gov. Brian Kemp (R) said last week he was pushing the legislature to get a bill to his desk.

Florida legislators last week voted to suspend the state’s gas tax for a month — but not until October, when tourism is at its lowest ebb of the year. And Michigan Gov. Gretchen Whitmer (D) said Friday she was in negotiations with the Republican-controlled state legislature, which planned to pass a bill creating a gas tax holiday for six months.

California Gov. Gavin Newsom (D) used his State of the State address to pledge what advisers said would eventually be billions of dollars in relief money for those paying higher prices at the pump, though without offering specifics.

“No one’s naive about the moment we’re living in, with high gas prices and the geopolitical uncertainty fueling them,” Newsom told legislators. “I’ll be submitting a proposal to put money back in the pockets of Californians to address rising gas prices.”

Newsom and Virginia Gov. Glenn Youngkin (R) have pushed their legislatures to delay gas tax increases.

Legislators or governors in Alaska, Colorado, Idaho, Illinois, Maine, Minnesota, Missouri, New Jersey, New York, Ohio, Pennsylvania and Rhode Island have all floated proposals or introduced legislation related to gas taxes in recent days. And a group of six Democratic governors last week called on congressional leaders to suspend the federal gas tax.

Most states tax gasoline at a higher rate than the federal rate of 18.4 cents per gallon. Suspending the local gas tax in those states would go farther to reduce the price of an average gallon than a federal suspension.

But even then, eliminating the tax that most states charge would put only a small dent in the cost of fuel. The average price of a gallon of gasoline in the United States stood at $4.325 on Monday, according to AAA. That price is up 26 cents from last week, up 84 cents from last month and $1.47 from a year ago.

The states that levy the highest gas taxes — Pennsylvania, California and Washington — all charge just over 50 cents per gallon. Maryland’s gas tax is about 37 cents per gallon, and Georgia adds a fraction under 28 cents to the cost of every gallon.

Suspending or ending a gas tax will cost any state hundreds of millions of dollars. But the timing of the crisis could not be better: States are unusually flush with cash, the result of both federal stimulus dollars approved during the pandemic and residents who are both making more and spending more money.

Florida’s monthlong suspension would cost the state $200 million, according to the nonpartisan Tax Foundation — money it plans to draw from its share of the American Rescue Plan Act’s coronavirus relief funds.

In a statement announcing his support of a gas tax suspension, Hogan cited new fiscal projections that show Maryland’s coffers are filling up at an unexpectedly fast pace.

“We have a once-in-a-generation opportunity to advance substantial tax relief for our families, small businesses, and retirees. People across the country are being squeezed by surging inflation on everything from gas to groceries — Marylanders, especially our retirees, deserve and need this relief,” Hogan said.

And there is no guarantee that a suspension of the gas tax in any state would lead to exactly that amount in lower prices. Jared Walczak, an analyst at the Tax Foundation, wrote in a policy brief that other factors like higher demand and global instability are more direct causes of the high prices.

“Policymakers understandably want to be responsive to the pain at the pump, and most states have revenue to spare,” Walczak wrote. “But there are far better ways to provide tax relief — short- or long-term — than an inefficient gas tax giveaway.”