Gas tax holiday? Not so fast, says Washington, D.C., tax think tank

When Pennsylvania Gov. Tom Wolf hailed President Joe Biden’s plan to ban Russian energy imports to the U.S. in response to President Vladimir Putin’s invasion in the Ukraine, he also announced support for a so-called federal gas tax holiday through 2022 as prices at the pump skyrocket.

Wolf said he signed on to a letter sent to congressional leaders along with the governors of Michigan, Wisconsin, Colorado, New Mexico and Minnesota supporting the federal tax holiday.

“At a time when people are directly impacted by rising prices on everyday goods, a federal gas tax holiday is a tool in the toolbox to reduce costs for Americans,” the governors wrote. “We support federal legislation to address rising gas prices by suspending the federal gas tax until the end of the year.”

However, a senior policy adviser at the Tax Foundation, a Washington, D.C.,-based think tank founded in 1937 by a group of prominent businessmen, doesn’t think the plan would be helpful in the long run.

In fact, Ulrik Boesen, senior policy analyst at the foundation, said the tax holiday would probably hurt Americans more than help them.

“Basically, we do not like this proposal,” Boesen said. “In reality, the federal gas tax is only 18.4 cents a gallon.

“Additionally, at federal level, the tax on gas contributes the majority of money to federal highway funding of bridges and road construction. If you take that away for any period, you end up having to backfill that money with more deficit spending,” he said.

More deficit spending would likely “increase the nation’s inflationary pressures,” Boesen said.

The eye-popping prices at the pump are also prompting some state lawmakers to act in Michigan and Pennsylvania, where Republican legislative leaders announced proposals to suspend or reduce state gas taxes.

“In the past several days, we have seen gas prices skyrocket to historic levels,” Pennsylvania Senate President Pro Tempore Jake Corman, a Republican running for governor, said in a memo seeking co-sponsors for the legislation. “We must do all that we can to address this now at the state government level and offer our support to hardworking families.”

Pennsylvania’s 58.7-cent-a-gallon gas tax is the highest in the nation, just ahead of California’s. Corman said he is introducing legislation for a roughly one-third reduction through the rest of the year. The lost revenue would be offset by directing $500 million of federal COVID-19 relief aid to state police and issuing $650 million in bonds to ensure infrastructure projects remain funded.

Locally, Unity Township Supervisor Mike O’Barto also raised questions about Wolf’s proposals on a Latrobe area community blog.

He noted that Pennsylvania has among the highest taxes on gas in the country and residents should question government leaders about those revenues.

The state’s gas tax, along with motor license fees, brings in about $4.5 billion with some $2.7 billion going to roads and bridges, $1.8 billion to state police, the turnpike and driver and vehicle services, O’Barto noted.

Reached Wednesday about his comments, O’Barto said if the state would enact a temporary holiday of a portion of state gas taxes through the end of 2022, “I’d be willing to ask the governor and our legislators to do that if it would save money … at the pump.

“But at the same time, in 2023, we would probably receive less in liquid fuels tax. We use liquid fuels money like most municipalities for salt, asphalt and paving,” he said.

“But if gas goes over $5 a gallon, I don’t know how people will be doing it. I think government should step up and take some responsibility,” O’Barto said.

Though average gas prices are at record levels, they are not yet the highest that Americans have paid when adjusted for inflation. The previous record high of $4.10 a gallon in July 2008 would be equal to about $5.24 in today’s dollars.

Proposals to suspend gas taxes are based on an assumption that the savings would be passed on to consumers.

The Associated Press contributed to this report.