President Joe Biden noted efforts to reduce high gas prices at the Eisenhower Executive Office building in Washington, DC, on June 22, 2022.
Jim Watson AFP | Getty Images
President Joe Biden has called on Congress to introduce a three-month federal gas tax to help alleviate the financial pain drivers are experiencing at the pump.
He is also asking the state and local authorities to provide additional relief.
This move comes as the average price per gallon of gas costs $ 4.93 per gallon, according to AAA, after recently exceeding $ 5 for the first time. A year ago, the average price per gallon was $ 3.08.
The federal gas tax is 18.4 cents per gallon, or 24.4 cents per gallon for diesel, which now costs an average of $ 5.81 per gallon.
In addition, states also impose their own taxes on gas.
Gas tax holidays have already been introduced by several states, including Maryland, Georgia and Connecticut. In addition, New York recently began its own gas tax holiday on June 1, and Florida is expected to implement one from October 1. More states also weigh some kind of relief.
The three recent shutdowns in Maryland, Georgia and Connecticut have led to savings that “were mostly passed on to consumers at some point during the tax holiday in the form of lower gas prices,” according to a recent analysis of Penn Wharton’s University budget model. of Pennsylvania.
However, experts say there are limits to how much these interruptions can alleviate the costs faced by drivers.
How many state gas tax vacations have helped drivers
The savings consumers saw from gas tax holidays in Maryland, Georgia and Connecticut varied by state, according to Penn Wharton’s budget model.
In Maryland, up to 72% of gas tax savings have been passed on to consumers, the study found. In Georgia, the share of consumer savings varies between 58% and 65%. And in Connecticut it was between 71% and 87%. (Connecticut applied the holiday only to gasoline, and the state tax on diesel will actually increase by 9 cents per gallon on July 1 under legislation passed in 2007)
These price reductions were often not maintained throughout the holiday, the study found.
New York has now introduced a gas tax holiday until the end of the year, suspending its taxes of about 16 cents a gallon. Florida is scheduled to give drivers a break of its 25 cents a gallon of state tax throughout the month of October.
According to Richard Prizinzano, director of policy analysis in Penn Wharton’s budget model, it depends on how much the savings that are passed on to the consumer depend on supply and demand.
STATE TAX HOLIDAYS ON GAS
- MARYLAND Gas taxes (per gallon): 36.1 cents for gas / 36.85 cents for diesel Suspension: March 18 – April 16
- GEORGIAGas taxes (per gallon): 29.1 cents for gas / 32.6 cents for diesel Suspension: March 18 – May 31
- CONNECTICUT Gas charges (per gallon): 25 cents for gas / No tax holiday for diesel Stopping: April 1 – June 30
The federal gas tax is paid by the refinery when the fuel leaves the refinery gate. State gas taxes are paid by distributors or refineries. How much of this tax is passed on to the consumer varies depending on how fixed the delivery is during the months during which the holiday is valid.
For the federal tax holiday, 50% to 60% of the tax reduction can be passed on to consumers initially, although this may decrease over time, Prizinzano estimates.
For a period of six or nine months, that could lead to about $ 50 in savings, he said.
“The benefit only works if everyone maintains the same amount of driving and retailers no longer raise their prices,” said Prizinzano.
Why gas tax holidays may not be effective
Abolishing the federal gas tax would reduce pump prices, though not by a full 18 cents, predicts Mark Goldwayne, senior vice president and senior political director on the Committee on Responsible Federal Budget.
Because refineries and oil companies can no longer produce, they can increase their pre-tax prices.
“Maybe consumers end up with 11 cents of savings on the pump, maybe less,” Goldwein said. “Even these savings are completely temporary.”
The committee estimates that Biden’s plan will reduce sticker inflation by 0.1% when it enters into force. But as soon as the gas tax holiday is over, it will increase inflation by more than 0.1%, bringing gas prices back to where they were or higher.
Arco gas station shows the price of a gallon over $ 6 in Monterey Park, California on June 22, 2022.
Frederick J. Brown | AFP | Getty Images
One-time government tax holidays on gas can lead to more savings for consumers, as they do not affect the national market and therefore may not further upset the imbalance of supply and demand, said Jared Walczak, vice president of government projects at the tax foundation.
A three-month vacation for a federal gas tax could result in savings of just $ 20 or less per driver, he said.
“The suspension of the gas tax is largely a political ploy,” Walczak said. “He is trying to fix a bigger problem.
“Policy makers who try to artificially lower prices for several months without doing anything about the main supply constraints will only make the problem worse in the long run,” he said.
Add Comment