The Hidden Truths of a Gas Tax Holiday

Posted by Larry Ehl on Wednesday, February 29th, 2012

Transportation Issues Daily

It’s predictable: when gas prices soar, some people will start advocating for a gas tax holiday.  With gas prices having increased in each of the last 22 days, we’re sure to see tax holiday proposals surfacing soon. Forbes calls the holiday notion a “silly but shiny idea“.

It’s questionable if gas tax holidays reduce the price of gas, or if it does, that consumers would receive the benefit promised by proponents.  In fact it’s more likely that consumers are hurt in the long run, due to this hidden truth: less revenue going to state and local governments means less funding for projects that maintain the transportation network and help move people and goods faster, safer and cleaner.

The idea was implemented in 2006 in New York, and apparently did not reduce the price of gas.  It merely reduced revenue – and left public agencies with less money for transportation construction, maintenance and operations (“New calls for gas tax holiday,” Time Union).

Here’s another hidden truth: In some cases the increased gas prices become a surrogate for other battles.  In May 2012, Republican Presidential candidates Tim Pawlenty and Mitt Romney both blamed Obama energy policies and inaction for increasing gas prices.  Some Democrats (including the President) used the rising prices to push for eliminating billions in subsidies to oil and gas companies, while some Republicans push for increased oil and gas extraction (“Gas Pumps Become Battleground for Obama and Republicans,” NYT Caucus Blog).  We]re likely to see the same arguments in coming weeks.

A gas tax holiday proposal was floated by Hillary Clinton during the 2008 Presidential campaign.  It was quickly adopted by John McCain, and rejected by Barack Obama.

During the ensuing debate over 150 economists from the across the political spectrum expressed opposition.  A Freakanomics editor posed a simple challenge: Try to find any coherent economist willing to support the gas tax holiday, and apparently did not succeed.

In 2011 during a similar gas price situation, Joshua Schank of the Eno Transportation Foundation provided a great summary of the attraction to, and problem with, a gas tax holiday:

[W]hen faced with higher gas prices, a likely response from elected officials is to attempt to reduce the cost of buying gas. And we can understand why they might want to do so. Gas price spikes cause real pain for people who have shaped their household budgets based on the assumption of cheap fuel, and have limited disposable income. In many cases, middle and working-class Americans live in communities where they have inadequate transportation alternatives to gasoline-powered vehicles. Extreme dependence on one form of transportation has its risks, one of which is that of price spikes.

….But the longer-term view necessitates broader thinking than simply lowering the cost of gasoline. If people feel pain when gas prices rise because they have no alternative, it makes sense to provide grants and incentives for states, cities, and communities to develop alternatives. However, dependence on federal fuel taxes for revenue means that the goals of lowering transportation costs for those who cannot afford to pay more and increasing transportation alternatives are inherently in conflict. “An Inherent Conflict of User-Pay,” Joshua Schank, President and CEO, Eno Transportation Foundation, “The Impact of High Gas Prices,” National Journal Transportation Experts Blog, 2011.

Larry Ehl is the founder and publisher of Transportation Issues Daily. In the public sector, Larry was Federal Relations Manager for Washington State DOT; Chief of Staff to US Senator Slade Gorton; and was twice elected to the Edmonds School Board.

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One Response to “The Hidden Truths of a Gas Tax Holiday”

  1. Blaine Peterson says:

    I’ve never really understood why the gas tax isn’t a fixed percentage as opposed to a fixed $0.184 per gallon. A tax rate would increase the proceeds directed into the so-called Highway trust fund as the price of gas increased. The price of gas in this country seems to fluctuate by margins larger than the current tax, yet the tax is what everyone seems to like to talk about. Go figure!

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