June 24, 2022 Glenn Stewart
A recent Wharton School study of gas-tax holidays in Maryland, Connecticut, and Georgia found that on average about 70 percent of the tax cuts got passed along to consumers—Refiners and gas-station owners pocketed the biggest chunk of the “savings.”
The Washington State Republicans, apparently ignoring the Wharton and other similar studies, proposed a “gas tax holiday” in our State to run through the rest of the year. Democrats were in general against it. State Senate candidate Sefzik, perhaps hoping for a resonant campaign slogan, put it more bluntly, “The majority party killed it.” But he does not say why the Democrats were not in favor. I can help with that, even if he won’t.
If we say the ‘rest of the year’ equates to roughly 25 weeks, and further if we say the average consumer buys a tank of gas a week (that will vary wildly; I’m retired and buy about a tank a month), we’re talking about 500 gallons per driver. Now, if past is prologue, up to 34 cents of the 49 cent gas tax the R’s propose to suspend will be passed to consumers—that’s a 15 cent per gallon savings. Simple math reveals that the average Washington consumer would realize $75 in total savings at the end of the 6 months of the year remaining.
(Biden’s 3-month proposed suspension of the federal tax would save the average driver $20 in total for the three months.)
Nuance is not the strength of either Party in the legislature, but the devil as always is in the details, which the Democrats considered while the Republicans did not.
First, the tax-break proposed by the Republicans in Olympia is aimed at the wrong target. The problem is tightened supply, in part because of global upheaval and in part due to strained refinery capacity. Cutting the tax will not help that situation, and would in fact make it worse. What cutting the tax will do is boost demand, even if marginally, which is exactly the wrong thing to do right now. The biggest benefit will go to those who drive the most, which amounts to, as James Surowiecki in The Atlantic makes clear, an incentive to drive more, not less.
But there is another problem, subtler perhaps, but very real.
The gas tax in Washington State (and D.C. for that matter) is in part a reflection of our efforts to mitigate the negative externalities of driving—-That is, the costs to the rest of society, including non-drivers. Surowiecki correctly laments the loss of connection between the gas tax and larger efforts to mitigate climate change, congestion, particulate pollution, and other negatives associated with automobiles. In short, suspending the gas tax “weakens the link between the tax and the (real) costs of driving, and makes the gas tax just another tool for generating revenue.”
Most need relief from the soaring costs—of groceries, healthcare, housing, and yes, fuel. And many of my fellow Democrats are on board to get that relief to people who need it as soon as possible. On that we agree with the Republicans. But not by creating yet another huge windfall for the oil refiners, or by encouraging yet more consumption in an era of limited supply.
There are better options and the Republicans know it.
First, sending out gas-price-relief rebate checks would make far more sense for two reasons: Such relief would not encourage yet more driving, and would be far better politics, at least for those who propose it. And for those who drive for a living the IRS can boost the mileage deduction in an instant.
The Republicans, especially and most recently our own local State Senate Republican, Simon Sefzik, are saying loud and clear:
We must do something about gas prices. A gas tax holiday is something. Therefore we must do it. Such a syllogism represents bad policy making and a lack of insight into the problem.