Don’t expect your state to give you a gas tax holiday anytime soon
By Tami Luhby, CNN
(CNN) — Drivers looking for some relief at the pump likely won’t get any help from their state during the current spike in gas prices.
When Russia’s invasion of Ukraine caused gas prices to skyrocket in early 2022, five states temporarily suspended their gas taxes, and at least three states paused planned increases to their levies.
Now, the US-Israeli war with Iran has fueled a nearly 80-cent, or 27%, jump in the average price of regular gas over the past month, according to AAA. Diesel gas prices have soared even higher. Combined, the sudden spike is expected to lead to price increases for many products, exacerbating the affordability crisis some Americans are already feeling.
However, only one governor who suspended the gas taxes in 2022 has floated providing another “holiday” in his state. At least two others gave lukewarm responses when asked about the idea by reporters.
There are several reasons why states may be more reluctant to offer such suspensions this year, experts said. Some states’ coffers are not as flush as they were in 2022, making it more difficult for them to afford a costly tax break. Also, consumers often don’t receive all of the savings, blunting some of the financial and political purposes of the holiday. Plus, it’s unclear how long the conflict will last and how long oil and gas prices will remain elevated.
“The most important factor here is, ‘What do people expect will happen with the war?’” said Alex Arnon, director of policy analysis at Penn Wharton Budget Model, which has studied the impact of gas tax holidays. “We are bouncing around between no end in sight and it’s ending tomorrow.”
Gas tax holidays
When New York Gov. Kathy Hochul suspended the state’s gas tax for seven months in 2022, she said it would put money back in people’s pockets and serve as “a critical lifeline for those who need it most.”
But when asked at a Politico forum last week whether she was considering another pause on the state’s tax of nearly 24 cents a gallon, Hochul had a very different response.
“I don’t think even people felt it because you know what happened? The price just went even higher,” she said, adding that the federal government should suspend its gas tax of 18.4 cents a gallon.
Hochul, a Democrat, on Sunday told CBS 2 that the federal government has “a responsibility to suspend all the excise taxes on gasoline” since its actions led to the price spike at the pump.
GOP Gov. Brian Kemp of Georgia, who has suspended his state’s gas tax three times since 2022, also isn’t rushing to provide another holiday.
“We’ve done that very effectively in the past, but they’ve been very targeted and strategic,” Kemp said in response to a reporter’s question last week. “We also have not overreacted to something that potentially could be a short-term blip, so we’re going to continue to watch things.”
However, Connecticut Gov. Ned Lamont has called for a one-month holiday, estimating it would save a household with two drivers about $21 a month. The roughly $40 million cost might be covered by reducing a proposed state rebate or shifting money from a state fund intended to offset federal spending cuts. The tax break would have to be approved by the state legislature.
“We’re trying to do everything we can to try to help you get through this really critical time,” Lamont said at a press conference last week, noting that residents wouldn’t have to wait until the summer to receive a rebate check if the state’s 25-cent per gallon gas tax were suspended soon.
How much would drivers save?
Motorists, however, typically don’t receive the full benefit of a gas tax holiday. Between 60% and 80% gets passed to retail customers, with the rest captured by gas stations and other players in the supply chain, Arnon said.
In Connecticut, for instance, between 71% and 87% of the savings was passed on to consumers in 2022, a Penn Wharton analysis found. Gas prices slid 11 cents the day after the holiday began that April 1. The decline grew to 23 cents on April 15 but then shrank slowly to about 14 cents in mid-May.
Georgia drivers received between 58% and 65% of the savings from the 2022 suspension, Penn Wharton calculated. Prices declined gradually, starting with 7 cents soon after the holiday began in mid-March to about 30 cents in mid-May.
Consumers, however, might see less relief from gas tax holidays this year if any states enact them, Arnon said. That’s because the effective closure of the Strait of Hormuz is causing an unprecedented supply constraint, leaving gas retailers uncertain how much they’ll have to pay for their next delivery of fuel.
“We should expect to see retailers holding on to much more of a gas tax holiday than they have in the past,” he said. “They want to prepare for the price increases and the supply shortages that they know are coming. On the demand side, they’re really not as concerned as they normally would be about losing demand – again, because they know there’s a shortage coming.”
Some states are also facing weaker tax revenue growth overall, making it more difficult for them to suspend a revenue stream, even temporarily, said Lucy Dadayan, principal research associate at the Urban-Brookings Tax Policy Center. Gas tax proceeds are a major source of funding for maintaining roads and transportation infrastructure.
Budget shortfalls are looming for some states, and virtually all must contend with shrinking federal support – largely due to hefty spending cuts contained in President Donald Trump’s domestic agenda package that became law last summer.
The relief also isn’t distributed evenly, with people who drive more receiving a larger share, she said. And while it might give some psychological relief, the holidays typically don’t amount to much.
“It’s only a few dollars of savings for an average driver,” Dadayan said. “On the other hand, it’s very costly for the states.”
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CNN’s Jessica Prater contributed to this story.
