ALBANY, N.Y. — Decades-high inflation was already giving Americans a headache. Then came Russia’s invasion of Ukraine, which sent gas prices soaring.
Now, blue and red states alike are embracing a solution that makes for great headlines: cutting gas taxes.
As federal action languishes on the issue, some states are quickly moving to suspend their own fuel taxes to counter price shocks at the pump. Governors and state lawmakers, in the midst of an election year, say it’s necessary relief for drivers.
“The combination of a war and a pandemic — if that’s not an emergency I don’t know what is,” said New York state Sen. Kevin Parker (D-Brooklyn), who chairs the Senate Energy Committee.
Not all states are jumping at the chance to lower gas taxes, saying the savings would be small. There's also pressure from environmentalists and some unions who support the taxes to pay for infrastructure.
Still, some lawmakers and governors are clamoring to take action, while those in other states already have.
The rush to curtail gas taxes is inviting a multitude of questions. But critics say states might just be hurting themselves and helping oil companies and gas retailers, whose pump prices are often opaque. They warn it may be hard to tell whether tax cuts actually reach drivers in the end.
And gas taxes pay for a host of transportation improvements, so suspending gas taxes without making up the dollars elsewhere could shortchange projects that are already strapped for money.
“The gas tax doesn’t nearly pay for all the costs of roads and highways, but in New York it pays a substantial amount of the cost of our transit system," said Danny Pearlstein, a spokesperson with the Riders Alliance, a transit advocacy group.
States, however, are sitting on large budget surpluses after a robust economic rebound last year — money that could help replace gas tax revenues if state leaders choose, supporters of a gas tax suspension said.
“People across the country are being squeezed by surging inflation on everything from gas to groceries — Marylanders, especially our retirees, deserve and need this relief,” said Maryland Gov. Larry Hogan, a Republican, announcing a plan last week to suspend the state’s gas tax for 30 days.
Georgia Gov. Brian Kemp, another Republican, has also reached a deal to suspend the state’s 29-cent excise tax on gas until the end of May. He expects to sign the bill in the coming days.
Florida lawmakers passed a one-month suspension of the state’s gas tax, scheduled for October, as part of a massive state spending plan approved Monday. Notably, the $200 million break will occur right before the general election. But Republican leaders said the timing was intended to ensure benefits flow primarily to residents because October is one of the lowest months for tourism.
Democratic governors in Pennsylvania, Michigan, New Mexico, Colorado, Minnesota and Wisconsin have all backed a congressional effort to suspend the 18.4-cent federal gas tax until next year. But the measure has stalled in Congress as Democrats fear losing the revenue would cut into President Joe Biden's signature infrastructure bill passed last year.
Meanwhile, lawmakers from Maine to Washington state have introduced bills to halt state gas tax collections and are working their way through state legislatures. Oil prices have dropped about 30 percent from last week's spike, but they remain higher than they were before Russia invaded Ukraine.
California gas tax fight
In some states, the push for relief predates Russia’s invasion of Ukraine.
California has become the nation’s poster child for eye-popping prices, with gas station signs showing prices above $7 a gallon and becoming fodder for memes on social media. That compares to a national average in the $4.30 range, while the state average was $5.75 per gallon of regular gas on Tuesday.
California has a few explanations for its gas prices. Its state gas tax is the highest in the nation at 51.1 cents per gallon. Environmental programs, such as cap-and-trade, add further costs. And the state requires a particular seasonal blend of fuel to reduce emissions that costs more. Beyond that, state officials for years have questioned whether the industry has added a "mystery surcharge" that can't be explained by other factors.
California Gov. Gavin Newsom, a Democrat, called in January for suspending a sliver of the state’s gas tax by forgoing an inflation-related hike. With the war in Ukraine sending prices even higher, Newsom doubled down last week by proposing a gas tax rebate for drivers, making it the most newsworthy element of his State of the State address.
Legislative Democrats prefer a rebate over toying with the state’s current gas tax formula, which they fought for in 2017 at a political cost, including a state senator being recalled over his vote. A rebate may have the added benefit of satisfying an obscure state requirement to give back money to taxpayers in high revenue years.
"I think there was a big collective sigh of relief when the governor came out and said, 'Let's focus on ways that we can just get money in people's pockets,’” said state Sen. Scott Wiener, a Democrat from San Francisco.
But minority Republicans saw an opportunity to press Democrats, who wield complete control in Sacramento. They tried — and quickly failed — to force a floor vote Monday in the state Assembly to immediately suspend the entire state gas tax for six months.
"Today we can shave 51 cents off the price of gas. A vote against my bill is a vote for $6 per gallon," Assemblymember Kevin Kiley, a Republican running for a House seat after a failed bid in last year’s gubernatorial recall, wrote on Twitter before Democrats rejected his plan.
Highway leaders would prefer that other states go the path of Newsom by using a rebate rather than cutting taxes directly, said Jim Tymon, executive director of the American Association of State Highway and Transportation Officials.
Tymon said there’s no guarantee that savings from cutting gas taxes would be passed on to consumers, whereas other relief mechanisms would have more control.
“If you do suspend the gas tax, you’re stopping a critical source of revenue that’s used to invest in transportation infrastructure,” he said. “It doesn’t seem like it’s a good precedent to set.”
Environmentalists are worried that a tax rebate could be a perverse incentive for gasoline-guzzling cars to hit the road more in an age of worsening climate change.
Instead, they argue, that money should be directed toward electric vehicle incentives, or even support for biking and walking.
"I feel sympathy for our decision-makers who are leading the state and for the public, who's suddenly burdened with a huge hike to their pocketbooks with these increased prices," said Environment California state Director Laura Deehan.
"But it underscores the necessity of accelerating as fast as we can away from dependence on dirty fuels like oil and gas that power so much of our lives today."
Tri-State proposals
New Jersey lawmakers are also pressing for a gas tax rebate for residents, proposing rebates of $500 per each household making less than $250,000 per year.
The bill comes from state Sen. Ed Durr (R-Gloucester), a truck driver-turned-lawmaker who scored a stunning victory in November over longtime Senate President Steve Sweeney. But that proposal is unlikely to go far.
Democratic Gov. Phil Murphy doesn’t seem inclined to touch the state’s own gas tax, which is set by a formula. Last year, the gas tax decreased based on that formula to 42.4 cents per gallon. Instead, Murphy said Tuesday he supports a federal gas tax holiday and releases from the strategic petroleum reserve.
Connecticut and New York may be headed toward a gas tax suspension.
Connecticut Gov. Ned Lamont, a Democrat, called Monday for suspending the state’s 25-cent excise tax on gas through June 30. A separate gross receipts tax would remain.
Meanwhile, Republicans in Democratic-controlled New York have pushed for a gas tax holiday since earlier this year, citing inflationary pressures.
Now, they’ve been joined by some Democratic lawmakers, including Parker, the chair of the state Senate Energy Committee who introduced a bill to suspend state gas taxes until the end of the year.
Parker said the lost revenue can be replaced with the rainy day savings in the budget for the fiscal year that starts April 1.
The state share of gas taxes in New York is about 33.8 cents, the ninth-highest in the nation, but taxes are capped after the first $2 per gallon. Counties also charge sales tax on gas, with revenue rising as prices rise. That’s led at least one county executive in upstate New York to propose capping the local rate, saying counties shouldn't reap additional revenue as drivers are squeezed at the pump.
The Legislature hasn’t yet convinced Gov. Kathy Hochul, a Democrat who is up for election this year along with all 213 state lawmakers.
She has questioned whether any savings for consumers would simply be eaten up by continued increases and raised concerns about replacing the lost revenue. New York’s dedicated gas taxes bring in about $1.3 billion annually. The money is split between roads, bridges, highways and mass transit.
“I’m taking this seriously. That was my first reaction — let’s do this,” Hochul said last week.
“But then I want to make sure that we have a guarantee that consumers are actually going to get a benefit from this, as opposed to us having to figure out how to plug a hole of $1.2 billion.”
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By: Marie J. French and Colby Bermel
Title: Gas price spike pressures governors to lower taxes
Sourced From: www.politico.com/news/2022/03/16/gas-prices-pressure-governors-taxes-00017292
Published Date: Wed, 16 Mar 2022 03:30:00 EST
