How much savings drivers have seen in 3 state breaks

President Joe Biden comments on efforts to bring down 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 asked Congress to institute a three-month federal gas tax holiday to ease drivers’ financial pain at the pump.

He is also asking states and municipalities for additional relief.

The move comes as the average price per gallon of gasoline is $4.93 per gallon, according to the AAA, after recently topping $5 for the first time. A year ago, the average price per gallon was $3.08.

The state gas tax is 18.4 cents per gallon, or 24.4 cents per gallon on diesel fuel, which now averages $5.81 per gallon.

In addition, the states impose their own taxes on gas.

Gas tax exemptions have already been introduced by several states, including Maryland, Georgia and Connecticut. Additionally, New York recently introduced its own gas tax holiday on June 1, and Florida is set to introduce one starting October 1. Other states are also considering some type of relief.

The three most recent suspensions in Maryland, Georgia and Connecticut resulted in savings that “mostly were passed on to consumers in the form of lower gasoline prices at some point during the tax exemption,” according to a recent analysis by the Penn Wharton Budget Model at the University of Pennsylvania.

But experts say there are limits to how much these temporary breaks can mitigate drivers’ costs.

How much government gas tax holidays have helped drivers

The savings consumers saw from gas tax holidays in Maryland, Georgia and Connecticut varied by state, according to the Penn Wharton Budget Model.

In Maryland, up to 72% of gas tax savings were passed on to consumers, the research found. In Georgia, the percentage of consumers who saved ranged from 58% to 65%. And in Connecticut, it was between 71% and 87%. (Connecticut applied the holiday only to gasoline, and the state tax on diesel fuel will increase by 9 cents a gallon on July 1 under laws passed in 2007.)

Those discounts often didn’t last throughout the holiday, the research found.

Now New York has enacted a gas tax exemption through the end of the year, suspending its taxes of about 16 cents a gallon. Florida is scheduled to give drivers a break from the state tax of 25 cents a gallon later in October.

How much savings are passed on to the consumer depends on supply and demand, according to Richard Prisinzano, director of policy analysis at the Penn Wharton Budget Model.

STATE GAS TAX HOLIDAYS

  • MARYLAND
    Gas taxes (per gallon): 36.1 cents petrol/36.85 cents diesel
    Suspension: March 18 – April 16
  • GEORGIA
    Gas taxes (per gallon): 29.1 cents petrol/32.6 cents diesel
    Suspension: March 18 – May 31
  • CONNECTICUT
    Gas taxes (per gallon): 25 cents on petrol/no tax holiday on diesel
    Suspension: 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 traders or refiners. How much of this tax is passed on to the consumer depends on how tight the supply is during the months that the holiday is in effect.

For the federal tax holidays, 50% to 60% of the tax cut could initially be passed on to consumers, although that could taper off over time, Prisinzano estimated.

Over a six or nine month period, that can translate to a savings of about $50, he said.

“The advantage only works if everyone drives the same amount and retailers stop increasing their prices,” said Prisinzano.

Why gas tax holidays may not be effective

Getting rid of the federal gas tax would lower prices at the pump, though not by the full 18 cents, predicts Marc Goldwein, senior vice president and senior policy director at the Federal Budget Committee.

As refiners and oil companies can no longer produce, they may increase their pre-tax prices.

“Perhaps consumers save 11 cents at the pump, maybe less,” said Goldwein. “Even these savings are absolutely temporary.”

The committee estimates that Biden’s plan would reduce sticker inflation by 0.1% if enacted. But once the gas tax holidays end, that would add more than 0.1% to inflation and bring gas prices back to where they were or higher.

An Arco gas station displays the price per gallon at over $6 on June 22, 2022 in Monterey Park, California.

Frederic J. Brown | AFP | Getty Images

One-time state gas tax exemptions can result in more savings for consumers because they don’t affect the national market and therefore may not further upset supply-demand imbalances, said Jared Walczak, vice president for state projects at the Tax Foundation.

A three-month federal gas tax holiday can result in savings of as little as $20 or less per driver, he said.

“The gas tax suspension is largely a political ploy,” Walczak said. “Trying to fix a bigger problem.

“Policymakers trying to artificially lower prices for a few months without doing anything about underlying supply constraints will only make the problem worse in the long run,” he said.

https://www.cnbc.com/2022/06/24/gas-tax-holidays-how-much-savings-drivers-saw-in-3-state-breaks.html How much savings drivers have seen in 3 state breaks

Chrissy Callahan

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