Environment

Washington lawmakers are considering a gas tax holiday. Don’t expect that to make a big dent in what you’re paying at the pump.

Gas prices in Westchester are above six dollars as prices at the pump continue to raise across the Southland on Sunday, March 13, 2022 in Los Angeles, CA.
Jason Armond | Los Angeles Times | Getty Images

Some Washington lawmakers are seeking to help curb prices at the gas pump by temporarily suspending the federal gas tax.

That may sound like good news to consumers who are suffering from sticker shock. Yet experts say the change would likely not result in a meaningful reduction in prices.

Democratic Sens. Maggie Hassan of New Hampshire and Mark Kelly of Arizona in February proposed a bill that would suspend the federal gas tax through the end of the year.

That levy amounts to 18.4 cents per gallon, while states separately impose their own levies.

The average price of a gallon of gas is $4.29 as of Thursday, according to AAA.

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The bill would require any cuts to go directly to consumers, rather than oil and gas companies, by enlisting the supervision of the Secretary of the Treasury.

In addition, it would replace tax revenue that typically goes to the Highway Trust Fund with transfers from the general fund.

Companion legislation has also been introduced in the House of Representatives by Democratic Congressman Tom O’Halleran of Arizona.

But the savings for consumers from a federal gas tax holiday would not likely be very substantial, according to estimates from the Penn Wharton Budget Model at the University of Pennsylvania.

If the federal gas tax were suspended from this month through December, it would lower average gas spending per person anywhere from $16 to $47 in total, according to a report.

Those estimates were calculated based on a price of $3.70 per gallon of gas. Now, with gas at around $4.20, the savings per person over that time would be around $50 this year, according to Kent Smetters, a professor at the University of Pennsylvania’s Wharton School.

“It’s not very much,” Smetters said.

Federal taxes make up a small portion of what consumers spend on gas, according to AAA spokesman Andrew Gross.

“The biggest factor of what accounts for the price of the gas … is the cost of oil,” Gross said, at about 56%. The rest includes about 14% for refining, 15% for distribution and marketing, and the remaining 15% for federal and state taxes.

Notably, state taxes on gas, along with other state levies and fees, tend to amount to more than the federal gas tax of 18.4 cents per gallon.

Producers are going to be the ones to really get the benefit of that tax decrease.
Kent Smetters
professor at the University of Pennsylvania’s Wharton Schoo

About 18 states are pursuing their own legislation to put gas tax holidays in place, according to Gross.

The problem is that most of the savings from those changes — whether they happen at the federal or state level — will not be passed on to the consumer, Smetters said.

“Producers are going to be the ones to really get the benefit of that tax decrease,” Smetters said. “They’re the ones with the power here.”

AAA has opposed the proposed federal legislation alongside other organizations including the American Association of State Highway and Transportation Officials and the American Society of Civil Engineers.

“Gas taxes fund a lot of important road safety programs,” Gross said. “And it’s not like our road safety needs will take a holiday, too.”

Temporarily suspending federal gas taxes now could end up being more expensive for consumers down the road, according to Michele Nellenbach, vice president of strategic initiatives at the Bipartisan Policy Center.

With the most recent infrastructure bill that passed, about $90 billion in general revenues was transferred to the Highway Trust Fund.

The Penn Wharton Budget Model estimates federal tax revenue could be lowered by about $20 billion if a gas tax holiday were put in place through the rest of this year.

“We’re already deficit spending our infrastructure, and so if you remove the gas tax, the trust fund has to stretch all that much further,” Nellenbach said. “At some point, the American taxpayer is going to have to pay for that.”

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