Tax Breaks

Will a Gas Tax Holiday or Suspension Lower Gas Prices Near You?

One way to bring down the price of gasoline is to establish a gas tax holiday. But will Uncle Sam, or your state government, suspend the gas taxes that you pay?

We're all feeling a lot of pain at the pump these days. The average price for a gallon of regular unleaded gas in the U.S. is over $4 per gallon ($4.60 per gallon on May 27). And that's a national average – prices are much higher in some parts of the country (averaging over $6 per gallon in California). Plus, gas prices are expected to stay high for the foreseeable future. The Biden administration is looking for ways to bring prices down – but the options are limited. Encouraging greater oil production, tapping the nation's Strategic Petroleum Reserve, and allowing more ethanol in gasoline will lower prices some, but what about a gas tax holiday?

Temporarily suspending the 18.4¢ per gallon federal gas tax would certainly put a dent in higher gas prices. Even though it wouldn't come close to wiping out the entire price increase we've experienced lately, it's one tool at the federal government's disposal. In fact, a bill has been introduced in Congress that would reduce the federal gas tax to zero for the rest of the year. And while the Biden administration is concentrating more on other options, it hasn't ruled out the possibility of a fuel tax holiday.

State gas tax holidays are more likely. In fact, they could help reduce gas prices even more because state gas taxes are higher than the federal tax in all but one state (Alaska). A few states have already suspended their gas tax temporarily, and a number of governors and state lawmakers in other states around the country are publicly supporting their own fuel tax holidays. Expect at least a few more states to jump on the bandwagon and enact gas tax holidays.

Will the Federal Gas Tax be Suspended?

At this point, a federal gas tax holiday still seems unlikely. First, it wouldn't save people all that much money. For example, a person who drives 12,000 miles a year in a car that averages 25 miles per gallon would only save about $55 if the federal gas tax was suspended for the rest of 2022. But the overall loss of tax revenue would be high – estimated to be close to $15 billion. That's money that wouldn't be available for road repairs and other needed infrastructure projects. The cost-benefit analysis doesn't favor a gas tax holiday in many people's minds.

There's also some concern that the oil companies wouldn't pass along all the savings to consumers if the federal gas tax was suspended. The current bill in Congress addresses this issue by stating that the "policy of Congress" is that "consumers immediately receive the benefit of the reduction in taxes" and that "transportation motor fuels producers and other dealers take such actions as necessary to reduce transportation motor fuels prices to reflect such reduction." However, the policy has no teeth. There's only a weak enforcement clause that permits the U.S. Treasury Department to "use all applicable authorities to ensure that the benefit of the reduction in taxes…is received by consumers." There are no specific fines or other penalties for failing to abide by the law.

Finally, because of the concerns noted above, there isn't enough support on Capitol Hill to suspend the federal gas tax. Some Congressional Democrats are certainly interested in the idea. Sen. Chris Murphy (D-Conn.) hopes there's "renewed interest on measures like a gas tax holiday, given the fact that energy prices are likely to head up for the foreseeable future in part because of the restrictions on Russian oil." But there doesn't appear to be much support among Democratic leaders in Congress, including House Speaker Nancy Pelosi (D-Calif.), who called a federal gas tax holiday "showbiz." It's not popular among Republicans on the Hill, either. There were no Republican co-sponsors of the federal gas tax holiday bill currently before Congress (and, frankly, only a few Democrats signed on). When asked if he supports a gas tax holiday, Sen. John Kennedy (R-La.) called it a "gimmick" that's "not going to make any difference." He also said that Senate Republicans "haven't talked a lot about it." In a letter to President Biden, Sen. Mark Lankford (R-Okla.) said a gasoline tax holiday "would do precious little in the short run and nothing in the long run." Without some bipartisan support, a gas tax holiday can't get through the Senate.

All of this could change if gas prices get high enough or drag on for an extended period of time. But at present, the best bet is against the federal government authorizing a federal fuel tax holiday.

State Gas Tax Holidays are More Likely

You're much more likely to see your state gas tax suspended. One reason being that many states can afford a tax cut right now because they have budget surpluses, due to recent economic growth and/or federal pandemic-relief funds.

Five states have already temporarily suspended their gas tax or a gas tax increase – but one of the gas tax holidays is already over. Maryland was the first state in the country to suspend its gas tax this year, but only by a nose. Gov. Larry Hogan (R) signed a bill on March 18 that authorized a 30-day gas tax holiday, which saved Marylanders about 36¢ per gallon at the pump for gasoline and approximately 37¢ per gallon for diesel. However, the suspension expired at midnight on April 16 (Hogan and other Maryland officials tried unsuccessfully to extend the holiday for an additional 60 days). (See our Maryland State Tax Guide for more information on Maryland taxes.)

A few hours after the Maryland gas tax holiday bill was signed, Georgia Gov. Brian Kemp (R) put his name on a bill that suspends his state's motor fuel excise tax until the end of May (the prepaid local sales tax is not suspended). On May 26, the governor extended the gas tax holiday by executive order to July 14. The Georgia tax is about 29¢ per gallon for gasoline and just under 33¢ per gallon for diesel. (See our Georgia State Tax Guide for more information on Georgia taxes.)

Connecticut became the third state to enact a gas tax holiday on March 24 when Gov. Ned Lamont (D) signed a bill to suspend the state's 25¢ per gallon excise tax on gasoline from April 1 to June 30. The separate 10.75¢ per gallon petroleum products gross earnings tax was not suspended. Under a budget adjustment bill signed on May 9, the Connecticut gas tax holiday is extended to November 30. (See our Connecticut State Tax Guide for more information on Connecticut taxes.)

New York also enacted a gas tax holiday when Gov. Kathy Hochul (D) signed a state budget bill on April 9 that will temporarily save New Yorker drivers 16¢ per gallon (16.75¢ per gallon inside the Metropolitan Commuter Transportation District) by suspending the state's sales and excise taxes on fuel from June through December. Local governments in the state can also cap the price that their separate sales tax rate is imposed on at $4 per gallon. (See our New York State Tax Guide for more information on New York taxes.)

Florida joined the list of states to enact a gas tax holiday when Gov. Ron DeSantis signed a budget bill on May 6 that will save drivers in the Sunshine State 25.3¢ per gallon at the pump – but not until October. The gas tax suspension will run for the entire month of October. (See our Florida State Tax Guide for more information on Florida taxes.)

While Colorado and Illinois haven't suspended their gas tax, they did suspend gas tax increases that were scheduled to take effect on July 1, 2022. In Colorado, a 2¢ per gallon tax boost won't kick in until April 1, 2023. (See our Colorado State Tax Guide for more information on Colorado taxes.) In Illinois, a 2.4¢ per gallon increase now won't take effect until 2023. (See our Illinois State Tax Guide for more information on Illinois taxes.)

Other governors and lawmakers from around the country have also suggested a gas tax holiday or other fuel tax relief measures for their state. States where gas tax relief of one form or another is currently being pushed by the governor or considered in the legislature include:

  • Alabama – Two bills introduced in the state legislature would suspend the state excise taxes on gasoline beginning on May 1. One bill would suspend the tax for four months, while the other would suspend it for one year. In either case, the tax would reappear if the average Alabama monthly price of gasoline for any month during the suspension period dipped below the average price for January 2022. (See our Alabama State Tax Guide for more information on Alabama taxes.)
  • Alaska – Gov. Mike Dunleavy (R) asked state legislators to suspend the state's gas tax until the end of June 2023. A bill to do just that is being considered by the legislature. (See our Alaska State Tax Guide for more information on Alaska taxes.)
  • California – Gov. Gavin Newsom (D) has proposed delaying an upcoming gas tax increase, sending Californians up to two $400 rebate checks per vehicle, providing free public transportation for three months, and temporarily suspending part of the sales tax on diesel fuel. A bipartisan group of state lawmakers is pushing for a year-long suspension of the state's gas tax, but they've been unsuccessful so far. (See our California State Tax Guide for more information on California taxes.)
  • Delaware – The state's fuel taxes would be suspended for 30 days under a bill introduced in the state legislature. (See our Delaware State Tax Guide for more information on Delaware taxes.)
  • Idaho – A bill before the state legislature would reduce the state's gas tax for two years. (See our Idaho State Tax Guide for more information on Idaho taxes.)
  • Maine – A bill has been introduced in the legislature to suspend the state's gas tax until the end of the year. (See our Maine State Tax Guide for more information on Maine taxes.)
  • Massachusetts – Gov. Charlie Baker (R) is willing to consider a gas tax holiday, and Republicans in the state legislature have unsuccessfully pushed for it. Democrats in the legislature have blocked multiple efforts to move the idea forward. (See our Massachusetts State Tax Guide for more information on Massachusetts taxes.)
  • Michigan – The state legislature passed a bill that would have suspended the state's gas tax for six months, but Gov. Gretchen Whitmer (D) vetoed the bill. The governor wants to suspend the state's 6% sales tax on fuel instead. A new bill to suspend the gas tax – this time for three months – is now being considered in the state legislature. (See our Michigan State Tax Guide for more information on Michigan taxes.)
  • Minnesota – Gov. Tim Walz (D) is willing to consider a temporary suspension of the state's gas tax, while a group of lawmakers have proposed a gas tax holiday from Memorial Day to Labor Day. (See our Minnesota State Tax Guide for more information on Minnesota taxes.)
  • Mississippi – A six-month gas tax holiday has been added to a larger tax bill that's working it's way through the state legislature. (See our Mississippi State Tax Guide for more information on Mississippi taxes.)
  • Missouri – Proposed legislation that would allow a six-month fuel tax holiday has been introduced in the state legislature. (See our Missouri State Tax Guide for more information on Missouri taxes.)
  • New Hampshire – Gov. Chris Sununu (R) supports a temporary suspension of his state's gas tax. A proposals to suspend New Hampshire's gas tax for two months was being kicked around in the state legislature, but the plan was abandoned for lack of support. (See our New Hampshire State Tax Guide for more information on New Hampshire taxes.)
  • New Jersey – A few bills introduced in the state legislature would provide tax rebates (potentially up to $800) to help cover the higher cost of gas and other items, or cut the state's gas tax for 60 days. (See our New Jersey State Tax Guide for more information on New Jersey taxes.)
  • Ohio – A bill before the state legislature would reduce the gas tax for five years, but Gov. Mike DeWine (R) is skeptical. (See our Ohio State Tax Guide for more information on Ohio taxes.)
  • Pennsylvania – Bills to temporarily cut the gas tax or suspend it through the end of the year have been introduced in the state legislature. (See our Pennsylvania State Tax Guide for more information on Pennsylvania taxes.)
  • Rhode Island – Bills before the state legislature would suspend the state's gas tax for either three months or until the end of the year. (See our Rhode Island State Tax Guide for more information on Rhode Island taxes.)
  • Virginia – As Virginia legislators continue to work on a new budget, Gov. Glenn Youngkin (R) is still pushing for a three-month gas tax holiday – May to July – and then for phasing the state's gas tax back in slowly in August and September. That plan was previously killed in the state legislature, but it could be resurrected during budget negotiations. Some Democrats in the state legislature have offered a counter proposal to give $50 rebates to car owners ($100 per household). (See our Virginia State Tax Guide for more information on Virginia taxes.)
  • West Virginia – A group of Democratic state legislators have asked the governor to declare a special legislative session to pass a gas tax holiday. (See our West Virginia State Tax Guide for more information on Virginia taxes.)

It's hard to say exactly which states listed above will ultimately enact a gas tax holiday or other gas tax relief. The situation is also very fluid across the country, so don't be surprised if the fuel tax holiday movement gains traction in other states as well. This is especially true if gas prices continue to remain high, which is expected.

Sean Lengell, Kiplinger Associate Editor and Congressional Reporter, contributed to this article.

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