Election-year politics have a way of bringing bad ideas to the top — when they belong at the bottom of the settling pond.
Yes, fuel prices are high, painfully so in many communities and particularly so for people and businesses that have no choice but to fill up the tank and drive to work or deliver for a living.
But suspending the federal tax on gasoline and diesel would not accomplish much good. Same for getting rid of the state tax. The Alaska Legislature this past session, with the support of Gov. Mike Dunleavy, considered suspending the state tax on motor fuels for a year, but a majority of lawmakers wisely decided against it.
It’s a lesson in politics to see that a Republican governor seeking reelection in a deep-red state wants to suspend taxes the same as a Democratic president who is trying to stave off a defeat for his party in this year’s midterm elections. Politically popular but ill-conceived ideas can cross party lines. Too bad it’s not the same for the good ideas.
Anyway, the reasons for not waiving the tax at the state level are the same as at the federal level: There is no way to ensure that all or even most of the tax holiday would flow through to consumers at the pump; suspending the tax would leave the public treasury short of funds to provide services; and does anyone really, truly, honestly believe the tax holiday would end as scheduled, without political efforts to extend it through the next election and the election after that?
Besides, the tax is not the cause of high prices, nor is it a big part of the bill at the pump. The federal gasoline tax is 18.4 cents a gallon — unchanged in almost 30 years. The state tax is 8 cents a gallon — the same rate it was in 1961. With gasoline at $5, $6 or close to $7 a gallon in some communities, the combined 26 cents in taxes is the least of the pain.
The tax is paid by the fuel wholesaler or distributor, not added like a sales tax at the grocery store. There is nothing the state or federal government can do to guarantee that the wholesaler will pass through the entire tax break to the gas station owner, who would then pass it on to the consumer. Studies of past tax holidays have shown that some, but not all, of the savings ended up in the consumer pocket. The only “solution” would be government-mandated price controls, which have never worked well.
Regardless of how much benefit consumers might see, the federal treasury would lose $10 billion in revenue during the three-month tax holiday proposed by President Joe Biden. The state treasury would have lost an estimated $35 million in revenue if lawmakers had approved the governor’s proposal for a year-long tax vacation. In the federal case, that would shortchange the Highway Trust Fund, which pays for, yes, highways. And since most people want more highway construction and repair, not less, that lost $10 billion would have to be covered out of the general fund checkbook, driving up the deficit.
The reasons for high gasoline prices are a global shortage of crude oil, insufficient refining capacity in the United States — the last refinery was built in the mid-1970s — and demand exceeding supply. Eliminating the tax would do nothing to solve those problems.
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