As petrol prices rise, more people are calling for the suspension of gas taxes across the country.
The “gas tax holiday” measures have been advancing slowly through Congress and state legislatures, but have gained traction since Russia’s invasion of Ukraine.
With petrol prices at all-time highs in the United States, an increasing number of governors and state legislators are pushing for the suspension of gas taxes to provide assistance to motorists facing even higher pump prices as the country cuts off Russian oil supplies.
Proposals for a “gas tax holiday” to combat inflation had been moving slowly in Congress and state capitols before to Russia’s invasion of Ukraine, but they have gained traction this week amid increasing gas prices, which averaged $4.25 per gallon on Wednesday, according to AAA.
Republican legislative leaders in Michigan and Pennsylvania proposed suspending or lowering state gas taxes on Wednesday. This came after both the Republican governor of Georgia and the Democratic governor of California appealed for relief from state gas taxes on the same day that President Joe Biden announced an embargo on Russian oil imports.
Meanwhile, the Democratic governors of Colorado, Michigan, Minnesota, New Mexico, Pennsylvania, and Wisconsin wrote to congressional leaders urging them to back legislation that would suspend the federal government’s 18.4-cent-per-gallon gas tax until 2022.
Critics of the ideas argue that there is no certainty that the savings will be passed on to consumers and that delaying gas taxes may jeopardise funds for road upgrades. Nonetheless, the skyrocketing gas prices are forcing lawmakers to act.
“We have witnessed gas prices jump to historic levels in the last several days,” Pennsylvania Senate President Pro Tempore Jake Corman, a Republican running for governor, said in a message seeking co-sponsors for the proposal. “At the state government level, we must do everything we can to solve this quickly and offer our assistance to hardworking families.”
Pennsylvania has the highest gas tax in the country, at 57.6 cents a gallon, just ahead of California. Corman stated that he will introduce legislation to reduce taxes by around one-third for the rest of the year. The lost gas tax revenue would be compensated for by diverting $500 million in federal COVID-19 relief funds to state police and releasing $650 million in bonds to ensure infrastructure projects are completed.
Legislation proposed in both the U.S. House and Senate would also transfer an equal amount of general fund funds to the accounts that pay state highway and public transportation programmes to compensate for lost revenue from a gas tax suspension. Groups advocating for road and bridge investment are opposed to the measure. They are concerned that a tax postponement will set a bad precedent and will be politically tough to reverse if lawmakers are seen as supporting a tax hike when it is reinstated.
One of the most significant impediments to suspending or lowering gas taxes has been the possibility of losing infrastructure funds, although some state officials think they can afford the financial blow. Due to an infusion of federal pandemic money and a recovering economy that delivered higher income and sales tax receipts than predicted, many states concluded their fiscal years in 2021 with record cash balances.
The cost of suspending Michigan’s 27.2-cent-per-gallon fuel tax from April to September would be around $725 million. The law was approved by the Republican-dominated House on Wednesday and now moves to the state Senate, which is also controlled by Republicans. The office of Michigan Governor Gretchen Whitmer, a Democrat, stated that it could impede road repairs.
“Michigan has billions of dollars in available surplus money,” House Speaker Jason Wentworth said in a statement Wednesday. “The remedy here isn’t difficult. Republicans are going to act today and put a real plan on the governor’s desk to actually reduce gas prices.”
While average gas prices are at all-time highs, they are not the highest that Americans have ever paid when adjusted for inflation. In today’s prices, the previous record high of $4.10 a gallon in July 2008 would be equivalent to about $5.24.
Proposals to suspend gas taxes assume that the savings will be passed on to consumers.
“Money saved at the pump translates into dollars back in consumers’ pockets for groceries, daycare, rent, and other expenses,” the six Democratic governors said in a letter to Democratic and Republican congressional leaders on Tuesday.
However, transportation advocates argue that the full amount of tax savings may not be reflected at the pump due to other factors influencing petrol costs.
According to a 2020 research from the American Road & Transportation Builders Association, only roughly one-third of the value of prior gas tax cuts or tax increases was passed on to consumers, based on an analysis of 113 state gas tax adjustments imposed over several years. This is due to the fact that retail gas prices are impacted by a variety of factors, including crude oil prices and supply-and-demand forces.
“The real problem with this approach at both the federal and state levels is that there’s no way to guarantee that people will see these savings when they go to the gas pump to fill up their cars, SUVs, and trucks,” Jim Tymon, executive director of the American Association of State Highway and Transportation Officials, said.
Georgia Gov. Brian Kemp postponed state motor gasoline taxes for several days last year to offset rising prices following the suspension of a critical pipeline that transports fuel to much of Georgia due to a computer attack.
Kemp announced on Tuesday that he wants to reinstate the state’s 29.1-cent-per-gallon gas tax due to rising costs, while details are still being worked out in legislation submitted in the General Assembly.
During his State of the State speech on Tuesday, California Gov. Gavin Newsom also renewed his plea for relief from rising gas costs, after a prior proposal failed to garner support in the Democratic-led legislature. According to AAA, the average price of a gallon of gas in California reached $5.57 on Wednesday, the highest in the US.
Following Newsom’s speech, California Senate President Pro Tem Toni Atkins and Assembly Speaker Anthony Rendon issued a joint statement stating that they intend to pursue tax relief from the general fund rather than “a tiny drop in the gas tax that may not be passed on to consumers.”
Virginia senators were also debating whether to postpone a recent gas tax increase for a year this week. The initiative was a significant campaign goal of Republican Gov. Glenn Youngkin, who was elected in November. The temporary 5-cent gasoline tax decrease was included in the Republican-controlled House’s budget proposal, but not in the Democratic-controlled Senate’s.
Prior to Russia’s invasion of Ukraine, Republican Gov. Ron DeSantis of Florida proposed a five-month moratorium on the state’s gas tax this summer as part of a larger tax relief plan. As part of a bigger tax-cut package, Democratic Gov. J.B. Pritzker of Illinois proposed halting an automatic 2.2-cent increase in the state’s automotive gasoline tax.
Other states, including Maryland, Minnesota, New York, and Ohio, have proposed suspending or repealing gas taxes. Missouri state Rep. Andrew Schwadron, a Republican, introduced legislation to suspend the state’s automotive fuel taxes for six months, citing an emergency to protect customers from rising prices, a day after Russia attacked Ukraine.
“The simplest method for us to deliver that relief would be to temporarily suspend that gas tax,” he explained.