Would a gas tax break help drivers save that much money? Here’s what experts say
Lawmakers across the country are proposing suspending gas taxes to ease the financial pressure that many Americans are feeling after gas prices soared to an all-time high.
States like Georgia, Maryland, Illinois, Arkansas, Maine, Michigan, New York, Pennsylvania and Virginia, among others, have either announced that they support providing a temporary gas holiday or that they are already working to suspend the tax in their states, according to CNN.
But would a gas tax break actually help Americans’ wallets? Not necessarily, experts say.
A gas tax break doesn’t guarantee lower prices at the pump
One of the main concerns raised by experts is that, even if gas taxes were suspended, there is no way to guarantee that the full tax savings would be reflected in the price at the pump, Ulrik Boesen, a senior policy analyst at the Tax Foundation, told McClatchy News.
“You might spend billions of dollars at the federal level trying to give a tax break, and the people you were trying to get the tax break to might not enjoy the full benefit,” Boesen said.
Gas taxes exist both at the federal and state level, Boesen explained, and the taxes are often paid by refineries or importers and then included in the final price we see at the pump.
According to the American Petroleum Institute, the federal tax on gas is about 18 cents per gallon. National gas prices average about $4 per gallon as of March 11, according to AAA.
“Even if Americans trust companies like Exxon and BP to pass on the full savings of the gas tax holiday to consumers, the difference would only be 18.4 cents per gallon,” Steve Wamhoff, director of federal tax policy, and Joe Hughes, a federal policy analyst, explained in the Institute on Taxation and Economic Policy.
“The average driver would save less than $8 a month, according to the most recent statistics from the Federal Highway Administration,” they wrote.
The federal gas tax helps fund highway maintenance
The money collected from the federal gas tax is mostly dedicated to the Highway Trust Fund and pays for road maintenance and construction across the country, according to the Tax Policy Center.
“The idea is that when I buy gas, I then go and drive on the roads,” Boesen said. “So the gas tax is my way of paying for using the roads.”
The federal gas tax accounts for more than 80% of the Highway Trust Fund, according to the Tax Policy Center.
“Without measures to replace the revenue, this would leave less funding for highway construction and maintenance and advance the insolvency date of the Highway Trust Fund,” Maya MacGuineas, president of the bipartisan Committee for a Responsible Federal Budget, wrote in the Hill.
Lowering prices might bring them back up
Another concern Boesen brought up is that by lowering the prices of gas by suspending gas taxes, there is a risk that it would increase demand at a time when supply is already limited.
“There’s a risk that you would further increase demand, which would then drive prices back up, and which could increase the general inflationary pressure on the economy,” he said. “And at the same time you’re depleting your federal highway fund from most of its revenue.”
Boesen suggested that tax relief altogether isn’t a bad idea — but might be better at a state level rather than at the federal level.
That being said, a gas tax break would be most noticeable in states with higher taxes.
States like California, Illinois and Pennsylvania have some of the highest gasoline taxes in the country, with 86.5, 78 and 77.1 cents per gallon respectively, according to the American Petroleum Institute.
In these states, while the price difference might be more noticeable at the pump, so will be the impact on the highway fund, Boesen explained.
In comparison, states like Louisiana, Texas and Mississippi have lower gas taxes — with 38.41, 38.40 and 37.19 cents per gallon respectively.
This story was originally published March 11, 2022 at 2:34 PM with the headline "Would a gas tax break help drivers save that much money? Here’s what experts say."
