Americans are feeling the pinch of rising gas prices. Now two states — Maryland and Georgia — are temporarily suspending their gas taxes in order to help their residents save money.
Other states could follow by putting their own gas tax holidays in place.
Maryland lawmakers have suspended the state gas tax for 30 days, which will save drivers 36.1 cents per gallon on gas, or 36.85 cents per gallon on diesel fuel. The gas tax holiday could cost the state almost $100 million.
Georgia’s suspension of its gas tax is slated to last through May 31. The state typically applies levies of 29.1 cents per gallon on gas, and 32.6 cents per gallon on diesel.
The national average price of a gallon of gas is currently $4.24, up from $2.88 one year ago, according to AAA.
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“We saw the pain at the pump with the rapidly rising prices that everybody across the country was seeing, and we decided we wanted to take some urgent immediate action,” Maryland Gov. Larry Hogan, a Republican, told CNBC’s “Squawk Box” on Tuesday.
More than a dozen states are reportedly considering taking similar measures. There are proposals on Capitol Hill to suspend the federal gas tax, which is 18.4 cents per gallon.
“I think that we’re going to have a bunch of states that temporarily suspend gas taxes in the coming weeks and months,” said Jared Walczak, vice president of state projects at the Tax Foundation.
A federal gas tax holiday is “certainly possible,” he said.
Limited savings
Such moves would be unprecedented.
There has never been a federal gas tax holiday, Walczak said. Moreover, any breaks on state gas taxes have mostly been limited to only a couple of days.
The average state gas tax is about 39 cents per gallon, or about double the federal gas tax of 18.4 cents per gallon.
If gas taxes are suspended either on the state or federal side, it would take time for drivers to rack up a substantial savings.
When asked about estimates that Maryland drivers would only save about $15 on average over the 30-day gas tax reprieve, Hogan told CNBC he thinks the holiday “makes a huge difference to the average consumer.”
Estimates from the Penn Wharton Budget Model have found that a federal gas tax holiday would only result in around $50 in savings for the average driver, based on current gas prices.
‘Ill-targeted approach’
Gas tax holidays may not be the most efficient policies for other reasons.
While part of the tax reduction will go to consumers, a substantial portion will benefit producers, Walczak said.
Moreover, if prices drop too precipitously, that could lead to shortages, he said.
Most states currently have substantial budget surpluses, according to Walczak. That is due in part to the fact that as personal incomes have gone up amid the pandemic bolstered by federal policies, states have been able to collect more money through income and sales taxes.
The federal government, on the other hand, has been deficit spending through most of the pandemic. A federal gas tax holiday would leave the government “even more in the lurch,” Walczak said.
For both states and the federal government, gas taxes finance road infrastructure. Severing those ties would make it more difficult to maintain them, he said.
While the Russia-Ukraine conflict has driven gas prices higher, they had already gone up $1.30 per gallon on average for the 16 months prior due to inflation, according to Walczak.
A reprieve from federal or state gas taxes would only help drivers at a time when all consumers are facing record high prices.
“This is targeted at one particular purchase when consumers are feeling the pinch everywhere,” Walczak said. “It’s an ill-targeted approach to broader inflation.”
