The Tax Foundation released a report this spring outlining why Florida’s October 2022 (yes, one month before the election!) gas tax suspension is likely to do little or nothing to help consumers battling the inflated cost of gasoline.
Minnesota Gov. Tim Walz (yes, the same Gov. Walz who wanted to raise Minnesota’s gas tax by 20-cents per gallon in 2019) and some in the legislature have proposed a similar gas tax gimmick.
- Florida Gas Tax Holiday Has Negligible Benefits – But Other States Seem Ready to Follow
- Suspending the Gas Tax is a Mistake
“A gas tax holiday may be good politics, but it is unlikely to achieve its aims. Fuel prices are high for many reasons right now: general inflation, higher transportation costs, the isolation of Russian markets, and more. Actual fuel shortages, as experienced in the 1970s, have yet to materialize, but high prices are one of the reasons for that. Prices are high mostly due to rising costs, but high prices also have the effect of limiting consumption.
“If a state suspends its gas tax, some of that reduction may find its way to consumers in the form of lower prices at the pump, but even in a highly competitive market, the equilibrium price may well be higher than the tax-free price. Just because Florida (or some other state) spends $200 million on gas tax relief doesn’t mean that consumers will pay $200 million less on gasoline.”
With scarcity rearing its head and inflation soaring, moreover, now is not a great time to artificially inflate demand.
“Expansionary fiscal policy is the wrong way to deal with inflation. If policymakers are looking to change the tax code to help fight inflation, they should pump the brakes on the gas tax holiday and instead consider structural reforms to raise the economy’s productive capacity in the long term.”