NEW YORK -- Florida Governor Charlie Crist has been fighting to cut 10 cents from the state's gasoline tax for two weeks in July. Lawmakers in Missouri, New York and Texas have also proposed a summer break from state gas taxes, while candidates for governor in Indiana and North Carolina are sparring over relief ideas of their own, reported The New York Times.
Rising frustration with gasoline prices has led two presidential candidates, Senators John McCain (R-Ariz.) and Hillary Clinton (D-N.Y.), to promote proposals to suspend the federal gasoline tax from Memorial Day to Labor Day. But [image-nocss] state gasoline taxes, which run as high as 45.5 cents per gallon, often add more to the price of fuel than the 18.4-cent federal excise tax and are the primary cause of price disparities across state lines, according to the report. So lawmakers and candidates at the state level have been getting into the act.
The response speaks not just to the reality of skyrocketing gas prices. It also highlights the political potency of anything that affects Americans' bonds with their cars, the report said. Gasoline is a product that no one can ignore—and one that inspires intense emotion. "It clearly evokes a visceral response because we're the only industry that has our prices in two-foot-high letters on the street corner," said John Felmy, chief economist at the American Petroleum Institute (API). "We've seen other things go up in prices, like milk, but if you ask 10 people on the street what's the price of milk they may not know. All of them will know the price of gas."
The gut-level frustration is especially visible at gas stations near borders between states with wide differences in gasoline taxes. The pumps have the feel of a discount store, flush with bargain hunters and families on the edge of an economic precipice, the New York Times said.
One of the Democratic presidential candidates, Senator Barack Obama (D-Ill.), has criticized the gasoline tax holiday as a gimmick, saying it would save drivers little money. But his Democratic rival, Clinton, and McCain, have defended their plans with emotional appeals. A recent Clinton advertisement highlighting her support for a summer gasoline tax suspension ends with a raspy, apparently working-class narrator saying: "People are hurting. It's time for a president who's ready to take action, now."
Suspending federal and state gasoline taxes, however, would not necessarily lead to a commensurate drop in prices, the report said. Since 2000, four states have enacted fuel tax holidays: Florida, Georgia, Illinois and Indiana. In general, retailers did not pass on all of the intended savings. When Illinois and Indiana suspended about 7 cents of their state gasoline taxes in the summer of 2000, prices fell by an average of only 4 cents, according to a study by the American Road & Transportation Builders Association, which opposed the plans. Drivers saved no more than $2.50 a month, while each state lost tens of millions of dollars in tax revenue.
Previous gas tax holidays caused other problems, too, said the report. During the last gasoline tax suspension in Florida in 2004, people hoarded gasoline, driving up demand and prices.
It is not clear how the new proposals would prevent such unintended consequences. The draft measures in Florida, Missouri and New York do not require retailers to pass on the tax suspension to consumers, nor are there provisions to prevent hoarding. The New York plan, sponsored by Republicans in the state Senate, would suspend three state gasoline taxes, amounting to about 32 cents per gallon, from Memorial Day to Labor Day. The Florida plan would create a tax holiday around July 4, cutting 10 cents per gallon off the 33.2 cents in total state gasoline taxes.
In Missouri, meanwhile, State Representative Jim Lembke (R) has sponsored a more novel approach to suspending the state's 17.6-cent gasoline tax: drivers would turn in their receipts at the end of the summer and the state would cut them a rebate check. Last week, the Missouri bill gained initial approval in the House; it has yet to be taken up in the Senate.
The New York proposal has yet to pass. And the Florida plan failed in the Legislature on Friday, but Crist said he would like to revive it.
In North Carolina, the Republican candidate for governor is proposing a gasoline tax holiday and permanent reduction, while in Indiana, the candidates for governor are debating ways to cap or reduce the growth of the tax, which rises with gasoline prices.
All of these plans come as other states resist letting go of gasoline tax revenue, the report said, which typically finances road construction and maintenance.
Minnesota's Legislature, after the deadly bridge collapse in Minneapolis last August, enacted a law this year raising its gasoline tax by 5.5 cents per gallon, to be phased in through October.
And Georgia, which briefly shelved its gasoline tax after Hurricane Katrina, has no plans for a sequel. Instead, Gov. Sonny Perdue has pushed to expand state bus service and is relying on new tax incentives for telecommuting that give people "the option not to buy gas," spokesperson Bert Brantley told the newspaper.
Separately, a new Tax Foundation analysis claims that the oil profit taxes and gasoline tax cuts suggested by the presidential candidates make little or no economic sense. None of the three policy solutions, neither the McCain tax cut nor the Obama tax hike nor the combined tax cut and tax hike suggested by Clinton, is a coherent part of a logical approach to energy tax policy, said Tax Foundation senior economist Gerald Prante.
The new study, "The Distributional Impact of Windfall Profits Taxes & a Gas Tax Holiday," gives the estimated impact on each income group of the gasoline tax cuts offered by McCain and Clinton, as well as the oil profit tax proposed by Clinton and Obama. (Click here to view the full study.)
Prante said the temporary gasoline tax cut will have a measurable benefit for people who have invested in oil companies, either directly by buying oil company stock, or indirectly through mutual funds, pensions, union funds and other savings vehicles that are invested in oil companies; however, He said that prices at the pump would not fall unless the tax repeal is permanent. Both McCain and Clinton are suggesting only a temporary federal gasoline tax repeal. Prante said Obama's plan to be even more counterproductive, costing households in every income group.
Clinton's idea of ordering gas stations to lower their prices by the amount of the tax cut "is the worst provision of them all," said Prante. "That is economically equivalent to price controls."
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