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  • : California Gov. Newsom will give $400 to households with one car and $800 to those with two cars. Other states have suspended their gas tax. Which approach is more effective?

Post: : California Gov. Newsom will give $400 to households with one car and $800 to those with two cars. Other states have suspended their gas tax. Which approach is more effective?

Though gas prices have backed off their record-breaking high in recent days, it hasn’t been by much.

The more that high prices at the pump stick around, the more that state and federal lawmakers are trying to find ways to ease drivers’ financial pain.

They’ve floated two types of ideas so far: pauses on the taxes assessed on gas and rebates that would send money directly to motorists in order to defray their gas costs.

The question is, can either approach make a meaningful difference in personal budgets at a time when inflation has been pushing prices up for months and Russia’s invasion of Ukraine continues? Gas tax pauses are flawed, some experts say. Rebates are better — but far from perfect, they add.

On Wednesday, California Governor Gavin Newsom unveiled a plan that would send $400 debit cards to every household with a car registered in the state, where average gas prices are the highest in the nation. The plan would distribute a maximum of two debit cards, meaning $800, per household. The proposal would also foot the bill on bus or train fare for three months to help people without a car.

“That direct relief will address the issue that we all are struggling to address, and that’s the issue of gas prices,” Newsom, a Democrat, said on Twitter
as he unveiled the proposal. The first payments could start in July. State drivers pay roughly $300 in gas taxes yearly, his office said.

Thursday’s nationwide average gas price was $4.23 per gallon, down 10 cents from the record set on March 11, according to AAA. California’s average price Thursday was more than $1.50 above the average, at $5.88.

Newsom’s proposal joins other direct cash ideas, including the federal Gas Rebate Act, introduced by three Democratic lawmakers. That bill would send $100 (plus $100 per dependent) to households for any month in 2022 where the national average gas price exceeds $4.

While those ideas surface, more states are pausing their gas taxes — much to the approval of voters in search of any kind of cost break. Roughly three quarters of voters said they support a hiatus on federal and state gas taxes, according to Morning Consult/Politico poll released Wednesday.

Georgia paused its 29.1-cent gas tax through May and Maryland paused its 36.1-cent tax for 30 days. Connecticut’s 25-cent tax is scheduled to halt from the beginning of April to the end of June. (Florida lawmakers cleared the way for an October gas tax halt.)

The federal government assesses an 18.4-cent/gallon gas tax and the revenue goes to the Highway Trust Fund, just as state gas taxes help fund state road upkeep.

Altogether, taxes account for 14% of the cost on a gallon of gas, according to the U.S. Energy Information Administration. By far, the top cost is crude oil and its price tag explains 61% of the cost of a gallon of gas, the agency said.

Nearly 20 other states are now considering pauses or at least smaller gas taxes for varying amounts of time, said Jared Walczak, vice president of state projects at the Tax Foundation, a right-leaning think tank.

For Walczak, a gas tax pause of any length is “an ill-targeted tax policy that doesn’t get to the root cause of high gas prices.” When Walczak lists his reasons against such tax holidays, he notes there’s no guarantee the full tax savings will get passed along to drivers.

He pointed to the Maryland and Georgia pauses, which happened the same day, March 18. Thursday’s average price in Maryland was $3.79, down 41 cents from $4.20 a week ago, AAA data showed. Georgia’s average price was down 25 cents, going from $4.24 to $3.99.

A rebate is “marginally better,” he said.

On the plus side, a rebate is money the driver can apply to all sorts of price increases while tax money keeps going to road upkeep, he said. “It’s better than a gas tax suspension, but it still does nothing to enhance the economy’s growth or improve outcomes in the long term,” Walczak said.

Walczak also worried any onetime cash infusions could just drive all sorts of prices even higher when supplies are tight.

“A rebate is a better solution than a gas tax holiday, but it is not without its own problems,” said Erich Muehlegger, an economist and professor at University of California, Davis, who has studied the interplay between consumer behavior and gas taxes.

A rebate wouldn’t affect the price of gas, he said — but consumers would “still face a strong incentive to conserve gasoline, take other forms of transportation or consider vehicles that have higher fuel economy or use alternative fuels.”

The money goes straight to people, so that reduces the worry of consumers missing out on the benefit if companies don’t reduce their prices. “But, like gas tax holidays, we should think about gas tax rebates like any other form of public spending — if we give money back in the form of gasoline tax rebates, we are not able to use that money for other purposes,” Muehlegger noted.

The price tag of California’s debit card program could be an estimated $9 billion. That’s around the amount that California had for a vehicle electrification initiative, he noted. The debit cards would be going to wealthy families and electric car owners in the swath of households keeping a close eye on gas prices.

“So, while $400 debit cards would be welcomed by many households in California that are feeling the pain from higher gasoline prices, some of the money would be allocated to households that have not been similarly impacted,” Muehlegger said.

Newsom’s political critics weren’t impressed with the rebate proposal.

“A Gas Tax Holiday fast tracks relief to Californians who are being crushed by higher costs for all basic necessities. California Republicans are united, calling for an immediate suspension of the gas tax, but Gavin Newsom and Legislative Democrats are unwilling to change oppressive tax laws,” said California Republican Party Chairwoman Jessica Millan Patterson.

Noting it could be months before rebates arrived, she added, “Democrats talk a good game, but Californians must continue to pay more and wait.”

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