To aid struggling consumers amid record-high gas prices , state legislators and policymakers are looking at different relief options, with suspending gas taxes the most prominent. Some states are also pursuing direct payments in the form of cash, tax rebates, or tax credits.
Although payments to consumers are better than suspending gas taxes for many reasons, neither type of policy is ideal, and neither addresses the main, underlying issue: our car dependence.
As many states are still negotiating their annual budgets, they should consider relief policies that make it easier for people to transport themselves without needing to pay for gas. By reducing the cost of public transportation and by developing infrastructure that makes walking and biking safe and convenient, states can create more sustainable, long-term relief options for American families.
How states are thinking through relief options
I scanned and inventoried the policies proposed or implemented at the state level according to publicly available information in media outlets and found that bills to suspend gas taxes have been introduced in at least 20 states and bills to provide residents with tax rebates, credits, or stimulus payments have been introduced in at least 16 states. At least three states—California, Connecticut, and Hawaii—are considering policy solutions that offer alternatives to driving.
California’s governor is proposing, among other things, to make public transit free for three months and to make additional investments in pedestrian and biking infrastructure. Connecticut passed a bill that suspends public bus fares for as long as their excise tax on gas is suspended. And Hawaii’s legislators are proposing subsidizing nonmotorized vehicles.
Connecticut (part of the same bill that suspended bus fares), Georgia , Florida and Maryland have already approved gas tax suspension policies, and Delaware , Idaho , Illinois , and New Mexico have approved policies that provide tax rebates or credits.
Although the three proposals to support alternative modes of transportation have come from Democratic policymakers, the debate over tax suspensions or rebates does not follow party lines. Democrats in West Virginia have called for a suspension of the gas tax, but the state’s Republican governor has called this proposal a “ political stunt .” In contrast, Virginia Democrats want a $50 rebate for car owners, while the Republican governor is demanding a gas tax suspension.
Suspending gas taxes could have negative long-term effects
Although gas tax suspensions might be popular with the electorate, this type of policy could do more harm than good in the long run.
- State gas taxes are a small fraction of the total gas price paid by consumers . The average gas price for all states is about 31 cents per gallon , or just 7.75 percent of the current average price. Maryland’s month-long suspension of the 36-cents-per-gallon tax, for example, would only save a driver about $30 if they buy 20 gallons a week.
- Getting rid of gas tax revenues imperils funding for infrastructure projects. In 2019, state and local gas taxes paid for 26 percent of the spending on highway and roads, and some states use this revenue source to invest in more sustainable modes of transportation, such as mass transit.
- Suspending gas taxes may increase inflation . Lowering the final price of gas can drive demand up at a time when supply is still being disrupted, which would further raise prices.
- The amount of tax suspended could not directly go to consumers’ pockets . Preventing station owners from taking some of these savings for themselves by increasing the gas price is complicated, as there is already a lot of price variation within states.
- Gas consumption is bad for the climate . Driving should be discouraged, not subsidized. One-fifth of global carbon dioxide omissions come from transportation, most of it from road vehicles.
Tax rebates are better than tax suspension but have their own issues
Stimulus payments, tax rebates, or credits are (maintaining all else equal) better relief measures than suspending gas taxes. A consumer can only materialize their tax suspension savings by buying gas, so it creates an incentive to drive, whereas a rebate or stimulus payment provides extra income for a person to use on anything.
But some tax rebates may be regressive. California’s relief proposal would provide a $400 refund for every car a person owns (capped at two cars), which incentivizes owning cars. It would also put taxpayer money into the hands of car owners, who have higher incomes than those without cars on average. The governor’s office claims that eligibility for the proposal is based on vehicle registration and not tax records, so “seniors who receive Social Security Disability income and low-income non-tax filers” would also receive benefits.
Like gas tax suspensions, rebates, credits, and payments put more money into people’s pockets, potentially raising demand and contributing to inflation.
Looking to the future
In the context of a climate crisis, we should welcome higher gas prices that discourage driving , but decades of investing in infrastructure and planning our cities and towns around cars have created a reality where people are forced to depend on individual vehicles for their day-to-day essential activities.
Understandably, policymakers want to provide short-term help to families struggling today because of high gas prices . But this critical moment can also be an opportunity to reflect on and reconsider our attachment to cars, which are worsening our climate and make us vulnerable to volatile gas markets. A true solution to today’s problems will require denser cities and towns, more transit, and support for nonmotorized transportation options.