State Gas Tax Relief Unlikely Despite Rising Fuel Prices

Drivers are unlikely to receive state-level gas tax relief despite recent increases in fuel prices. In early 2022, five states temporarily suspended their gas taxes and at least three paused planned increases following Russia's invasion of Ukraine, which caused a significant rise in prices.

Recent Price Surge and Economic Impact

The average price of regular gas has increased by approximately 80 cents, or 27%, over the past month, according to AAA, due to the US-Israeli conflict with Iran. Diesel prices have also risen. These price increases are anticipated to affect the cost of various products, potentially worsening affordability challenges for some Americans.

State Reluctance to Offer New Tax Holidays

However, only one governor who enacted gas tax suspensions in 2022 has proposed another tax holiday. Others have expressed reservations when questioned about the possibility.

Experts indicate several factors contributing to state reluctance this year. State budgets are less robust compared to 2022, making it more challenging to absorb the cost of a tax break. Additionally, consumers typically do not receive the full amount of savings, which diminishes the financial and political effectiveness of such holidays. The duration of the current conflict and its impact on oil and gas prices also remain uncertain.

Governors Weigh In

New York Governor Kathy Hochul, who suspended the state's gas tax for seven months in 2022, noted last week that she believes "even people felt it because you know what happened? The price just went even higher." She suggested the federal government should suspend its gas tax.

Georgia Governor Brian Kemp, who has suspended his state's gas tax three times since 2022, stated that past actions were "very targeted and strategic" and that he is monitoring the situation without overreacting to what could be a "short-term blip."

Conversely, Connecticut Governor Ned Lamont has advocated for a one-month gas tax holiday, estimating it could save households with two drivers about $21 per month. This proposal, costing approximately $40 million, would require legislative approval.

The Reality of Savings: Who Benefits?

Analysis by the Penn Wharton Budget Model indicates that between 60% and 80% of gas tax holiday savings are typically passed on to retail customers, with the remainder retained by gas stations and other supply chain entities.

In 2022, consumers in Connecticut received 71% to 87% of the savings, while Georgia drivers received 58% to 65%. Experts suggest that consumers might see even less relief from potential gas tax holidays this year due to current supply constraints, such as the effective closure of the Strait of Hormuz, which may lead retailers to retain more savings in anticipation of future price increases and shortages.

Expert Insights on Effectiveness and Costs

Lucy Dadayan, a principal research associate at the Urban-Brookings Tax Policy Center, highlighted that some states are experiencing slower tax revenue growth, complicating the temporary suspension of a significant funding source like gas taxes, which support road and transportation infrastructure.

"The relief from gas tax holidays is not uniformly distributed and typically provides only a few dollars in savings for an average driver, while being costly for states."