Pain at the Pump
Gas prices, which have been steadily increasing throughout the past year, rose to new heights in recent weeks due to volatility in the energy market caused by the war in Ukraine. According to AAA, the average cost of gas in the United States hit a record high on March 11 at $4.33 per gallon. Although that number has since fallen to an average of $4.24 per gallon, it remains 18 percent higher than it was last month and 48 percent more than it was a year ago.
In an attempt to alleviate consumer’s pain at the pump, several states are moving to temporarily suspend their state gas tax until fuel prices come down. For example:
- Georgia is suspending its 29 cents per gallon gas tax until the end of May;
- Connecticut is suspending its 25 cents per gallon gas tax until June 30;
- Maryland is suspending its 36.1 cents per gallon gas tax through mid-April; and
- Florida will suspend its 25 cents per gallon gas tax, but not until October when tourist season has ended.
Here in Michigan, Governor Gretchen Whitmer signaled her support for a “gas tax holiday” on March 8 when she called on congressional lawmakers to suspend the 18.3 cent federal gas tax. “Today, (five other) governors and I are announcing our support for a federal gas tax holiday,” Whitmer tweeted at the time. “We need to do all we can to put money back in people’s pockets.” However, when republican lawmakers in the Michigan Legislature passed a bill three days later to nix the state’s 27.2 cents per gallon gas and diesel tax for six months, Governor Whitmer promised to veto it.
Election year politics aside, it may be a good thing the debate in Michigan ended in gridlock. While officials across the country have embraced this kind of legislation, many experts say that a temporary reprieve from gas taxes is an ill-conceived fix that will only hurt Americans in the long run.
To start, gas tax holidays can be quite costly for state budgets. If Michigan’s were to have been signed into law, it would have cost the state an estimated $725 million in transportation funding. Broken out, this includes $255 million for state highways, $225 million for county road commissions, and $142 million for local roads, according to the non-partisan House Fiscal Agency. Most of the states that are proceeding anyway are doing so because they, like Michigan, have the surplus and stimulus funds to make up for those losses. Considering much of our state’s windfall is one-time funds, there’s a strong argument to maximize them by spending them elsewhere.
Another issue is one of supply and demand. With summer around the corner and gas suddenly more affordable, consumers may be more likely to ‘make that extra trip’ when they wouldn’t have otherwise. While this may sound like a good thing – particularly for our area – increasing demand through artificially lower prices will only exacerbate the supply issue that is driving prices up in the first place. Exacerbating the supply issue will only serve to prolong the problem of high prices at the pump.
Last but certainly not least, there is the uncertainty around when exactly our worldwide supply will recover. With the war in Ukraine dragging on and sanctions on Russia just starting to set in, there’s little evidence the shortage will be over particularly soon. This means temporary tax suspensions could lead to sticker shock when prices suddenly shoot up after the holiday ends.
Make no mistake, high gas prices are hammering household budgets across the nation and relief would provide a respite for drivers and even help lower shipping costs for food and other important commodities. That said, gas tax holidays are a band-aid solution at best.
If elected officials desire a long-term solution to alleviating the pain we feel at the pump, they should focus their efforts at solving the supply issue in the most responsible way we can – by achieving domestic energy independence. With gas prices consistently over $4 a gallon and oil production increasingly becoming a matter of national security, there is no time left to lose.