Several states are trying to give drivers a break from high gasoline prices by temporarily suspending their gasoline taxes. And President Joe Biden is urging Congress to do the same by lifting the federal gasoline tax through September.
But consumers aren’t getting the full benefit of gas tax holidays, according to a recent analysis by nonpartisan budget model Penn Wharton, which looked at the suspensions in three states through mid-May. Instead, they must share the savings with gas suppliers, who capture some of the economic benefits if prices at the pump do not fall by the full amount of the suspended tax.
The report quantifies some of the criticisms that economists and budget experts have voiced about gas tax exemptions. Furthermore, they argue that temporarily eliminating the tax does not curb long-term inflation, because it stimulates demand by lowering prices without increasing supply. In addition, it reduces tax revenue and funding for repairs and transport infrastructure.
So far, Connecticut, Florida, Georgia, Maryland and New York have temporarily suspended gasoline taxes, while Illinois and Kentucky have blocked planned gas tax rate hikes. gasoline, according to the nonpartisan Tax Policy Center. Other states have expressed interest in gasoline tax holidays or other measures to help residents pay for fuel.
Congress is unlikely to act on Biden’s call. Although past administrations have called for gas tax exemptions, lawmakers have never approved such a measure.
State Gasoline Tax Holidays
In Maryland, 72% of tax savings were passed on to consumers, according to Penn Wharton, which used two separate methods to calculate the benefit in each state examined.
The state suspended its gasoline tax of 36.1 cents per gallon from March 18 to April 16. Drivers saw a drop of around 12 cents the day after the holiday went into effect, but the reduction fell to just under 30 cents for much of the period. .
Georgia eliminated its 29.1 cents per gallon tax on gasoline from March 18 to May 31. Consumers received between 58% and 65% of the savings, depending on the method used by Penn Wharton.
Peach State drivers saw prices drop more gradually, starting at 7 cents shortly after the start of the holiday to around 30 cents in mid-May.
Between 71% and 87% of the savings were passed on to Connecticut consumers, Penn Wharton found. The state eliminated its gasoline tax of 25 cents per gallon from April 1 through June 30. Gasoline prices fell 11 cents the day after the holiday began. The decline rose to 23 cents on April 15, but then slowly declined to about 14 cents by mid-May.
“Based on our study, we don’t find that all of the tax cuts have been passed on to consumers,” said Penn Wharton economist Zheli He, who co-authored the report. “The rest was captured by distributors.”
Federal Gasoline Tax Exemption
On Wednesday, Biden pushed Congress to suspend the federal gas tax by about 18 cents, saying it would “bring some relief to families.”
Experts have wondered how much gas tax exemptions really help drivers.
Consumers would likely get only one-third the benefit of federal gas tax relief, tweeted Jason Furman, professor of economics at Harvard University and chairman of the Obama administration’s Council of Economic Advisers.
“Whatever you think of the merits of a gas tax exemption in February, it’s a worse idea now,” Furman tweeted. “Refineries are even more constrained now, so supply is almost completely inelastic. Most of the 18.4 cent reduction would be pocketed by industry – with perhaps a few cents passed on to consumers.
Senior administration officials acknowledged those criticisms, but said Biden would pressure companies to pass the savings on to drivers.
“The president is calling and demanding that industry, businesses, and retailers pass this on to the consumer at the pump,” Amos Hochstein, senior energy security adviser at the State Department, told the co-anchor of “New Day from TSWT. John Berman Wednesday.
“We would look at it and ask the industry to do just that, pass it on,” he said.
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