At a Glance
Main Takeaway
The federal government proposed a three-month gas tax holiday nationwide to reduce the high gas price burden on consumers. While this gas tax holiday may lessen gas prices in the short term, the long-term consequences of both federal and state gas taxes may be more harmful than beneficial.
Next Step
Learn the short- and long-term effects of federal and state gas tax holidays on pump prices and about the California gasoline tax refund. Contact Windes’ experienced accounting team today for assistance with individual tax preparation.
What is a Gas Tax?
A gas tax is an excise tax you pay every time you fill up your car. The purpose of the tax is to help the federal government raise revenue to put toward infrastructure projects, like repairing and building highways and bridges. Currently, the federal government and all 50 states impose a gas tax.
Since 1993, the federal gas tax has held steady at 18.4 cents per gallon of gas. However, most states have recently increased their gas tax to keep up with inflation and rising gas prices.
Alaska’s state gas tax is the lowest, at under 8 cents per gallon of gas. In comparison, Pennsylvania has the highest gas tax rate at 57.6 cents per gallon, with California rates right behind at just over 51 cents per gallon. The average state gas tax rounds to about 31 cents per gallon.
The gas tax does not only apply to traditional gasoline. Federal and state governments also levy diesel, aviation, and jet fuel taxes.
2022 Gas Tax Holiday
On June 22, President Biden called for a three-month suspension of the federal gas tax. This suspension, known as a gas tax holiday, aims to provide direct relief to Americans saddled with high costs at the gas pump.
With the federal government tax rate currently set at 18 cents for every gallon of gasoline, and 24 cents for one gallon of diesel, the gas tax holiday aims to shoulder some of the financial burdens of rising gas costs on citizens.
The federal government typically files gas tax money into its Highway Trust Fund, which pays for improvements to highway infrastructure and mass transit. President Biden is now asking Congress to find other sources of revenue to finance the Highway Trust Fund while calling on the states to enact tax holidays of their own to provide consumers additional relief.
Some state officials are considering other ways to relieve the burden of high gas prices. California is home to the country’s highest gas prices, with the statewide average for gasoline reaching a high of $6.43 per gallon last month, nearly a dollar and a half more than the national average, which was $5 per gallon in June of 2022.
California Governor Gavin Newsom has not called to suspend the gas tax in C.A.; however, Newsom supports sending $400 checks to every registered vehicle owner in the state. Newsom’s proposal has not yet been implemented. On the contrary, California’s already-high state gas tax is 2.8 cents per gallon.
The State of California Controller’s Office (SCO) is also administering a Gasoline Tax Refund Program for the State of California. They will review and process refund claims from individuals or businesses that purchase gasoline in the state for off-highway, paratransit, export, or blended ethanol-gasoline uses. Off-highway uses may include farming, construction, landscaping, and utility providers. To be eligible for the California Gasoline Tax Refund, the individual or business must use gasoline as specified in Revenue and Taxation Code section 8101.
Consumer Savings During Federal and State Gas Tax Holiday
Federal and state tax holidays can help relieve the financial burden of high gas prices in the short term. The head of petroleum analysis at GasBuddy, which monitors gas prices at 150,000 gas stations throughout the United States, stated that the three-month federal gas tax holiday could save Americans $70 million daily.
While that sounds like a lot of money, the actual financial benefit for individual drivers is modest. An average American driver uses about 600 gallons of gas in a year. The federal tax holiday suspends 18.4 cents for every gallon of gas, which means that the average driver saves less than $10 every month on gas.
Waiving state gas taxes will also save you money in the short term. After Maryland enacted a state gas tax holiday on March 18, consumers saw a statistically significant decline in gas prices. The same price decline occurred in Georgia and Connecticut a few weeks later.
However, once these tax holidays expired, gasoline prices rose to higher levels than before. Concerns about the long-term consequences of both federal and state gas tax holidays are arising as the U.S. continues to see this trend repeat.
Long-Term Consequences of Federal and State Gas Tax Holiday
While implementing a federal and state gas tax holiday will undoubtedly save consumers money in the short term, the longer-term consequences may mean higher prices in the future.
Waiving fuel taxes means lower overall gas prices, which encourages demand. More drivers on the road consuming gas can drive up gas prices, effectively negating the benefits of the gas tax holiday. Americans collectively spend $722 million more daily on gasoline than they did last year. The increased demand for gas during federal and state gas tax holidays drives up pre-tax prices.
Without revenue from the federal gas tax, the Highway Trust Fund lacks the necessary funding to repair and maintain highway infrastructure. Poor road conditions can lead to accidents and vehicle damage, which are both dangerous and costly.
Considering these consequences, many now believe state and federal gas tax holidays are doing more harm than good, at least in the long term.
Windes Can Help with Tax Preparation
Windes’ experienced tax accountants can help you prepare for the unexpected. We help our clients manage changes resulting in tax consequences with our individual and business tax return preparation and planning services. With Windes, we can help you discover tax credits and deductions that reduce your tax burden to help with the rising cost of gas in the U.S.
Connect with us today to discover how our knowledgeable tax accountants can help you receive the benefits you are entitled to.