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As states consider gas tax exemptions, don’t expect big savings


A sign reflects the price per gallon of fuel at a gas station on March 10, 2022 in Miami, Florida.

Joe Raedle | beautiful pictures

Americans are finding it difficult when gas prices rise. Two states – Maryland and Georgia – are suspending gas taxes to help save money.

Other states could follow suit by adopting their own gas tax holidays.

Maryland legislators have suspend state gas tax for 30 days, which will save drivers 36.1 cents/gallon on gas, or 36.85 cents/gallon on diesel fuel. The gas tax cut could cost the state nearly $100 million.

Georgia suspends its gas tax expected to be extended until the end of May 31. The state generally imposes a tax rate of 29.1 cents/gallon on gas and 32.6 cents/gallon on diesel.

The national average price of a gallon of gas is now $4.24, up from $2.88 a year ago, according to AAA.

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“We’ve seen the pain to pumps with rapidly rising prices that people across the country are witnessing, and we decided we wanted to take some urgent action immediately.” , Maryland Governor Larry Hogan, a Republican, told CNBC’s “Squawk Box” on Tuesday.

More than a dozen states are said to be considering implementing similar measures. There are proposals on Capitol Hill to suspend the federal gas tax, which is 18.4 cents per gallon.

“I think we are going to have some states temporarily suspend gas taxes in the coming weeks and months,” said Jared Walczak, vice president of state projects at the Tax Foundation.

He said that a federal gas tax holiday is “certainly possible”.

Limited savings

Such moves would be unprecedented.

Walczak said there has never been a federal gas tax holiday. What’s more, any cuts to the state’s gas tax are mostly limited to a few days.

The average state gas tax is about 39 cents per gallon, or about double the federal gas tax of 18.4 cents per gallon.

If the gas tax is suspended from the state or federal side, it will take time for drivers to reap significant savings.

‘Bad targeting method’

Gas tax exemption policies may not be the most effective for other reasons.

While part of the tax relief will go to consumers, a significant portion will benefit manufacturers, Walczak said.

Furthermore, if prices fall too quickly, that could lead to shortages, he said.

According to Walczak, most states now run a substantial budget surplus. That’s partly because increased personal incomes amid the pandemic have been aided by federal policies, which states have been able to collect more money through through income and sales taxes.

On the other hand, the federal government has run a spending deficit during most of the pandemic. Walczak said that a federal gas tax holiday would make it “more difficult for the government”.

For both the states and the federal government, gas taxes fund road infrastructure. Cutting those ties will make it harder to maintain them, he said.

While the Russia-Ukraine conflict has caused gas prices to soar, they have increased by an average of $1.30 a gallon in the previous 16 months due to inflation, according to Walczak.

Federal or state gas tax breaks will only help motorists at a time when all consumers are facing record high prices.

“This is targeted at a specific purchase when consumers are feeling pinched everywhere,” says Walczak. “It’s an under-targeted approach to inflation across the board.”



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