Gas tax suspensions face doubts as war drives fuel prices higher

Drivers are paying the price at the pump, but suspending gas taxes may not deliver the relief politicians promise. With the national average topping $4 a gallon, lawmakers from state capitals to Washington are debating whether temporary tax cuts can blunt the war-driven spike without starving road and transit budgets.

So far, Georgia and Utah are the only states to move. Georgia began a 60-day suspension of its 33-cent-per-gallon gas tax on March 20. Utah approved a six-cent cut in its 38-cent-per-gallon fuel tax, but that reduction does not start until July 1. Even where the policy is in place, the savings are not guaranteed to reach drivers dollar for dollar, because retail gas stations have charged an average of 38 cents per gallon above wholesale prices over the past five years.

That gap is one reason governors remain cautious. Florida Gov. Ron DeSantis said in March that government’s ability to influence fuel prices is “really marginal at best,” arguing consumers did not feel much relief from the 2022 gas-tax pause. The concern is especially sharp in states where fuel taxes pay for visible public services. California’s 61-cent-per-gallon gas tax is the nation’s highest, and gasoline there averaged $5.89 a gallon on Wednesday, yet a suspension has not gained traction in the Democratic-led Legislature because lawmakers worry about replacing the lost revenue.

The last big round of gas-tax holidays offers a warning. Connecticut suspended its 25-cent gas tax from April 1 to June 30 in 2022 before phasing it back in. New York suspended gasoline and diesel taxes later that year and saved consumers an average of 16 cents per gallon. Maryland’s monthlong holiday cost the state about $100 million, while Georgia’s 2022 suspension was budgeted at about $400 million. When many of those holidays ended, the Energy Information Administration reported that state taxes and fees on gasoline averaged 31.63 cents per gallon and on diesel 33.88 cents in January 2023, and fuel taxes had increased in 13 states since July 2022.

The federal gas tax is even harder to touch. It stands at 18.4 cents per gallon on gasoline and 24.4 cents on diesel, and it generates more than $23 billion a year for highway and public transit programs. Any federal holiday would require approval from Congress, making it a politically difficult sell even as New York Sen. Michelle Hinchey and 14 colleagues pressed Gov. Kathy Hochul for a statewide holiday, saying the price surge has disrupted commuting, industrial production and tourism.

The pressure could intensify if the Strait of Hormuz is disrupted. Stanford researchers Neale Mahoney and Ryan Cummings estimate that a closure of the waterway, through which about one-fifth of the world’s crude oil normally moves, could push U.S. gas prices above $4.25 a gallon in May and add about $857 to the average household’s gasoline costs over the rest of the year. That kind of shock underscores the limits of tax relief: it may offer a short-lived break, but it cannot offset a sustained energy shock for long.