Democrats and Republicans at the federal and state levels are calling for a suspension of the gas tax in order to offset the rise in prices at the pump.
What sounds like a good idea is actually a political gimmick — and a dangerous one at that.
A “gas tax holiday” could lead to temporary relief at the pump, as long as the cut in the gas levy was passed on to consumers at the pump. But somehow, it doesn’t always happen that way. Why?
It’s complicated, we’re told.
For Our VIPs: Should There Be a Federal Gas Tax Holiday?
In fact, independent operators are under no obligation to pass the entire savings from a gas tax holiday on to consumers. Plus, there are problems with funding critical infrastructure projects if the gas tax is taken out of the equation.
But there are ways to make up for the loss of revenue from gas taxes — some more politically palatable than others.
Pennsylvania’s 57.6-cent-a-gallon gas tax is the highest in the nation, just ahead of California’s. Corman said he is introducing legislation for a roughly one-third reduction through the rest of the year. The lost gas tax revenue would be offset by directing $500 million of federal COVID-19 relief aid to state police and issuing $650 million in bonds to ensure infrastructure projects remain funded.
Legislation pending in both the U.S. House and U.S. Senate also would offset lost revenue from a gas tax suspension by transferring an equal amount of general fund dollars to the accounts that fund state highway and public transit programs. The legislation is opposed by groups that advocate for road and bridge funding. They fear a tax suspension would set a poor precedent and become politically difficult to restore, if politicians are cast as supporting a tax hike when it kicks back in.
Since inflation and tight supplies are likely going to be with us as long as Joe Biden is in the White House, the idea of bumping gas taxes back to where they were before Russia’s invasion is politically dangerous.
But right now, states are flush with cash as a result of the federal government sending $350 billion with no strings attached to spend as they wish. So if there was ever a good time to suspend the gas tax, this is it.
On average, only about one-third of the value of previous gas tax cuts or tax increases were passed on to consumers, according to a 2020 report from the American Road & Transportation Builders Association that analyzed 113 state gas tax changes enacted over several years. That’s because retail gas prices are influenced by complex factors, including the price of crude oil and supply-and-demand pressures.
“The real problem with this approach at both the federal and the state level is that there’s no way to ensure that the people will see this savings when they go to the gas pump to fill up their cars, their SUVs and trucks,” said Jim Tymon, executive director of the American Association of State Highway and Transportation Officials.
Yes, but at least it gives voters the sense that the politicians are “doing something about the problem.” Of course, it may not help at all. It may be just a dog and pony show that politicians are putting on for voters.
But at least it’s something.
Over the next few weeks, governors and state legislators, as well as Democrats in Congress, will celebrate a suspension of the gas tax. But whether it actually helps is anyone’s guess.
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