Metropolis

A Gas Tax Holiday Is a Terrible Idea

For so many reasons.

A young man in a T-shirt, a backward baseball cap, and shorts frowns at the pump as he fuels up his car at a gas station in Miami
A gas station in Miami on Thursday. Joe Raedle/Getty Images

Maryland is planning a 30-day gas tax holiday. GOP Gov. Larry Hogan and the state’s Democratic-controlled legislature announced an agreement to suspend the 37-cent-a-gallon levy on Thursday. It’s the first state policy put in place to ease the high price of gas, which has climbed by almost a dollar in the last month, but probably not the last: The National Conference of State Legislatures says more than a dozen states are considering similar moves. Earlier this week, California Gov. Gavin Newsom proposed a gas tax rebate.

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Meanwhile, half a dozen Democratic governors have called on Congress to suspend the federal gas tax, and Democratic Sens. Mark Kelly and Maggie Hassan have written a bill that would nix that 18-cent fee until Jan. 1, 2023.*

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It’s not every day that you see so much political consensus around an idea this bad. Flush with cash from COVID relief, Democrats in state government are trying to use their budget surpluses on a tax cut that undermines everything they claim to stand for. Lowering the gas tax would be a handout to the rich, harm the environment, and gut funding for public works. Even if the reprieve is meant to be temporary, it will be hard to undo. And it probably won’t move the needle for Democrats in the midterms regardless.

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First things first: If Democrats are trying to give the working American a break, the pump is the wrong place to do it. Rich people spend much more money on gas than poor people. According to the Bureau of Labor Statistics Consumer Expenditure Survey, the top 20 percent of Americans by income spent almost three times more on gas in 2020 than the bottom 20 percent. They spent almost twice as much on gas as the second-lowest quintile.

So while it’s true that gasoline makes up a greater share of the poorest households’ expenditures (except, of course, those too poor to own a car), gas tax relief would effectively give three dollars to every rich household for every dollar to a poor household. There are fairer ways to help low-income Americans make ends meet—and smarter ways to target gas price relief to help important, inflation-fueling industries like agriculture and shipping.

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Expensive gas has some positive effects, too. It provides an incentive for American households, companies, and cities to make sustainable plans for the future. Those changes are beneficial twice over. They reduce the many underpriced externalities associated with driving, such as air pollution, injuries and deaths, and greenhouse gas emissions. Additionally, every solar panel, heat pump, and windmill we build makes us less vulnerable to high oil prices in the future.

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Our federal gas tax is the lowest in the developed world, and it has never been high enough to account for the negative consequences of driving—transportation now produces the country’s largest slice of greenhouse gas emissions. But it’s never been lower than it is right now. We haven’t raised the gas tax since 1993. Adjusted for inflation, the federal gas tax is 45 percent lower now than it was then. (Speaking of inflation, by the way, gas prices are about 25 percent lower now, in real terms, than they were in 2008—which calls into question the nature of the present emergency.)

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That’s too bad for a number of reasons, but one of them is that the gas tax is supposed to fund infrastructure. Drivers like to think they pay for the roads when they fill up the tank, but in reality, declining gas tax revenue has forced the U.S. to transfer hundreds of billions of dollars of general fund revenue into the Highway Trust Fund over the past decade.

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As for the politics of the gas tax: Everyone hates it. It makes sense why endangered Democrats (five of the six Democratic governors asking for federal relief are up for reelection) are asking for a gas tax holiday. Cooler heads should prevail. The gas tax is ultimately a force for good, but judging by our failure to raise it in 30 years, it might be awfully hard to reinstate once it’s gone.

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Another reason Democrats should not lower the gas tax is that it’s not going to help them that much. The states where gas spending is most important to household budgets are almost all run by Republicans; those where gas spending matters less tend to be swing states or blue states. More importantly, the 18-cent federal tax now makes up less than 5 percent of the cost of a gallon of gas. People just aren’t going to notice the difference.

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At the state level, tax cuts will have slightly more impact. Florida Gov. Ron DeSantis is hoping to use $200 million of American Rescue Plan Act money on a one-month gas tax cut in October, just before Election Day.

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But even if you put aside concerns about fairness, the environment, and infrastructure—and the irritating, possibly illegal diversion of ARPA funds—it’s not clear that cutting gas taxes will have the desired effect in giving consumers a break. One concern is that lower gas taxes will drive fuel consumption, which will increase prices right back to where we started. Another is that the savings get redirected into other inflationary sectors, driving up prices there.

One axiom driving this dubious political calculation is that Dems need to enact bad policy now to save themselves from worse policy (a GOP midterm wipeout) later. That’s valid, but they would be better served by looking at the underlying issue. Gas isn’t expensive because of the gas tax. To that end, the economist Claudia Sahm has collected some good ideas to get gas prices down, which (in the short term) include buying oil from Iran and Venezuela and negotiating more aggressively with Saudi Arabia and other oil-producing Gulf States.

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Instead of making it easier to burn gas, Democrats could also try to make it easier not to burn gas. They could put that ARPA money into beefing up woeful public transit service, building safer streets to bike and walk, letting people keep working from home, and making it easier for more people to live close to job centers. There’s a war going on, after all, and for once, Dems can deploy the language of patriotism and sacrifice in the service of things they already believe: that ultimately it would be better to consume less gasoline, rather than more.

Correction, March 11, 2022: This piece originally misstated that the proposed tax holiday would run through 2023. It would run until Jan. 1, 2023.

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