With gas prices at record highs, an increasing number of governors and state lawmakers — including in Pennsylvania — are calling for the suspension of gas taxes to provide relief to motorists who are facing the prospect of even higher pump prices as the country cuts off Russian oil imports.
Proposals for a “gas tax holiday” to counter inflation had been moving slowly in Congress and state capitols before Russia invaded Ukraine, but they have gained momentum this week amid surging prices that averaged $4.25 a gallon on Wednesday, according to AAA.
Republican legislative leaders in Pennsylvania and Michigan announced proposals Wednesday to suspend or reduce state gas taxes. That came after the Republican governor of Georgia and Democratic governor of California both called for relief from state gas taxes Tuesday, when President Joe Biden ordered a ban on Russian oil imports.
“In the past several days, we have seen gas prices skyrocket to historic levels,” Pennsylvania Senate President Pro Tempore Jake Corman, a Republican running for governor, said in a memo seeking co-sponsors for the legislation. “We must do all that we can to address this now at the state government level and offer our support to hard-working families.”
Pennsylvania’s 57.6-cent-a-gallon gas tax is the highest in the nation, just ahead of California’s. Corman said he is introducing legislation for a roughly one-third reduction through the rest of the year.
The lost gas tax revenue would be offset by directing $500 million of federal COVID-19 relief aid to state police and issuing $650 million in bonds to ensure infrastructure projects remain funded.
Meanwhile, the Democratic governors of Colorado, Michigan, Minnesota, New Mexico, Pennsylvania and Wisconsin sent a joint letter to congressional leaders urging them to support legislation suspending the federal government’s 18.4-cent-a-gallon gas tax through 2022.
Critics of the proposals say there is no guarantee the savings would get passed on to consumers and worry that suspending gas taxes could hurt funding for road projects. Even so, the eye-popping prices at the pump are prompting lawmakers to act.
Legislation pending in both the U.S. House and U.S. Senate also would offset lost revenue from a gas tax suspension by transferring an equal amount of general fund dollars to the accounts that fund state highway and public transit programs. The legislation is opposed by groups that advocate for road and bridge funding. They fear a tax suspension would set a poor precedent and become politically difficult to restore, if politicians are cast as supporting a tax hike when it kicks back in.
The potential for lost infrastructure funding has been one of the biggest obstacles to those seeking to suspend or reduce gas taxes, but some state officials say they can afford the financial hit. Many states ended their 2021 fiscal years with record cash balances due to an influx of federal pandemic aid and a resurgent economy that yielded greater income and sales tax revenue than expected.
Though average gas prices are at record levels, they are not yet the highest that Americans have paid when adjusted for inflation. The previous record high of $4.10 a gallon in July 2008 would be equal to about $5.24 in today’s dollars.
Proposals to suspend gas taxes are based on an assumption that the savings would be passed on to consumers.
“Money saved at the pump translates into dollars back in consumers’ pockets for groceries, childcare, rent, and more,” the six Democratic governors wrote in their letter Tuesday to Democratic and Republican congressional leaders.
But transportation advocates say that because of other factors affecting gas prices, the full amount of tax cuts may not be reflected at the pump.
On average, only about one-third of the value of previous gas tax cuts or tax increases were passed on to consumers, according to a 2020 report from the American Road & Transportation Builders Association that analyzed 113 state gas tax changes enacted over several years. That’s because retail gas prices are influenced by complex factors, including the price of crude oil and supply-and-demand pressures.
“The real problem with this approach at both the federal and the state level is that there’s no way to ensure that the people will see this savings when they go to the gas pump to fill up their cars, their SUVs and trucks,” said Jim Tymon, executive director of the American Association of State Highway and Transportation Officials.
