Will a gas tax exemption lower gas prices near you?
Gas prices are skyrocketing. Right now, the average price of a gallon of regular unleaded gasoline in the United States is well over $4 per gallon ($4.31 per gallon on March 16). And that’s a national average – prices are much higher in some parts of the country (averaging well over $5 a gallon in California). Plus, there’s no sign of a pullback anytime soon, so who knows how far gas prices will go. The Biden administration is looking for a way to help ease the pain at the pump — but options are limited. Encouraging greater oil production and tapping into the country’s strategic petroleum reserve are certainly on the table, but what about a gasoline tax exemption?
The temporary suspension of the federal gasoline tax of 18.4¢ per gallon would certainly reduce the increase in gasoline prices. While that wouldn’t come close to eliminating all of the price spikes we’ve seen lately, it’s a tool available to the federal government. In fact, a bill has been introduced in Congress that would reduce the federal gas tax to zero for the remainder of the year. And while the Biden administration is more focused on increasing global oil supply, it hasn’t ruled out the possibility of a fuel tax waiver.
State tax exemptions on gasoline are also possible. In fact, they could help reduce gasoline prices even further, since state gasoline taxes are higher than the federal tax in all but one state (Alaska). A number of governors and state legislators across the country publicly support fuel tax exemptions in their states. And leaders in at least one state have already agreed to a temporary suspension of their fuel tax and are working on legislation to finalize the deal. Expect more state governors and lawmakers to follow their lead.
Will the federal gas tax be suspended?
At this point, a federal gasoline tax exemption seems unlikely. First of all, it wouldn’t save people a lot of money. For example, someone who drives 12,000 miles a year in a car that averages 25 miles per gallon would only save about $70 if the federal gasoline tax were suspended for the remainder of 2022. But the loss overall tax revenue would be high – estimated at around $20 billion. This is money that would not be available for road repairs and other necessary infrastructure projects. The cost-benefit analysis does not favor a gas tax exemption in the minds of many people.
There are also concerns that oil companies will not pass all the savings on to consumers if the federal gas tax is suspended. The bill pending in Congress responds to this concern by stating that it is the “policy of Congress” that “consumers benefit immediately from the tax reduction” and that “producers of transportation fuels and other dealers take necessary to reduce fuel prices to reflect such a reduction.” However, the policy lacks teeth. There is only a weak enforcement clause that allows the US Treasury Department “to use all applicable authorities to ensure that the benefit of the tax reduction…is received by consumers.” There are no specific fines or other penalties for failure to comply with the law.
Finally, due to the concerns mentioned above, there is not enough support on Capitol Hill to suspend the federal gas tax. Some congressional Democrats are certainly interested in the idea. Sen. Chris Murphy (D-Conn.) hopes there will be “renewed interest in measures like a gas tax exemption, given that energy prices are likely to rise for the foreseeable future, in part because of restrictions on Russian oil”. But there doesn’t seem to be much, if any, support among Republicans on the Hill. There were no Republican co-sponsors of the federal gas tax exemption bill currently before Congress (and, frankly, only a few Democrats signed it). When asked if he supports a gas tax exemption, Sen. John Kennedy (R-La.) called it a “trick” that “won’t make a difference.” He also said Senate Republicans “didn’t talk about it much.” In a letter to President Biden, Sen. Mark Lankford (R-Okla.) said a gas tax holiday “wouldn’t do much in the short term and nothing in the long term.” Without some bipartisan support, a gas tax exemption cannot pass through the Senate.
All of that could change if gas prices get high enough or drag on for an extended period of time. But right now, the chances of seeing a federal fuel tax exemption are slim.
State gas tax holidays more likely
You are much more likely to have your state gas tax suspended. One reason being that many states can afford a tax cut right now because they have budget surpluses, due to recent economic growth and/or federal pandemic relief funds.
In Maryland, Governor Larry Hogan (R) and legislative leaders are moving quickly to pass a 30-day gasoline tax exemption, which could be signed into law this week. This would save Marylanders about 36¢ per gallon at the pump.
Other governors and lawmakers across the country have also suggested a gasoline tax exemption or other fuel tax relief measures for their state. States where gasoline tax relief in one form or another is currently being pushed by the Governor or being considered by the Legislature include:
- Alaska – Gov. Mike Dunleavy (R) has asked state lawmakers to suspend the state gasoline tax until the end of June 2023.
- California – Gov. Gavin Newsom (D) has suggested delaying an upcoming gas tax hike or establishing a gas tax rebate, while a bill introduced in the Legislature would suspend gas tax for six months. (Note: California’s gasoline tax exemption bill has stalled. Republican lawmakers recently failed to force a vote on the bill to move it forward.)
- Colorado – Gov. Jared Polis (D) has proposed delaying a gasoline tax increase that is expected to take effect in July.
- Connecticut — Gov. Ned Lamont (D) recommended suspending the 25¢ per gallon excise tax on gasoline until June 30 (the separate 10.75¢ per gallon gross revenue tax on petroleum products would still apply).
- Florida — A budget bill passed by the state legislature provides a month-long fuel tax holiday in October. Governor Ron DeSantis (R) earlier proposed a five-month suspension.
- Georgia – Gov. Brian Kemp (R) backs a bill that would suspend the state’s gasoline tax until the end of May.
- Idaho – A bill before the state Legislature would reduce the state gasoline tax for two years.
- Illinois — Gov. JB Pritzker (D) wants to delay the annual gas tax increase, while some state lawmakers prefer to cap the state gas tax at 18¢ per gallon.
- Maine – A bill has been introduced in the Legislature to suspend the state gasoline tax until the end of the year.
- Michigan — A bill that would impose a six-month gas tax suspension is moving quickly through the state legislature, but Gov. Gretchen Whitmer (D) can veto the bill if it passes .
- Minnesota – A group of lawmakers has proposed a gas tax exemption from Memorial Day to Labor Day.
- Mississippi – A six-month gas tax holiday has been added to a larger tax bill that is making its way through the state legislature.
- Missouri – A bill that would allow a six-month fuel tax holiday has been introduced in the state legislature.
- New Jersey – A bill introduced in the state Legislature would offer an immediate tax refund of $250 or $500 to help cover the higher cost of gas and other items.
- new York – Several bills are being considered by the state legislature that would suspend the gas tax for different periods (eg, for a year, until 2022 or until September). Governor Kathy Hochul (D) is lukewarm about the idea. Another proposal before the state legislature would cap the state gasoline tax at 25¢ per gallon.
- Ohio – A bill before the state Legislature would lower the gas tax for five years, but Gov. Mike DeWine (R) is skeptical.
- Pennsylvania — Bills to temporarily reduce the gas tax or suspend it until the end of the year have been introduced in the state legislature.
- Rhode Island – A bill before the state Legislature would suspend the state gasoline tax for the remainder of the year.
- Virginia – Gov. Glenn Youngkin (R) is pushing for a one-year gasoline tax exemption.
It’s hard to say which states will eventually enact a gas tax exemption or other gas tax relief. In the list above, Georgia and Florida seem the closest to finalizing a deal, but things could change quickly in those states or any other state. Things are also very fluid across the country, so don’t be surprised if the fuel tax exemption movement gains traction in other states as well. This is especially true if gas prices continue to rise, which is expected.
Sean LengelKiplinger’s associate editor and congressional reporter, contributed to this article.