Gas tax holiday good politics, not policy

A gas tax holiday may be good politics but it’s not good public policy, according to Evan Horowitz, executive director of the Center for State Policy Analysis at Tufts University.

President Biden last week proposed the temporary elimination of the 18.3-cent federal gas tax and urged states to do away with their gas taxes as well to provide some relief to drivers at the pump.

Gov. Charlie Baker sided with Biden, saying Massachusetts is so flush with cash that it can afford to eliminate the state’s 24-cent gas tax and still have plenty of money available for additional, more permanent tax cuts.

Horowitz said on The Codcast that the problem of high gas prices is a real one, and it’s not unreasonable to return some of the state’s surplus cash to taxpayers. But he said a gas tax holiday doesn’t really address the underlying problems causing high gas prices and predicted the price of a gallon of gas wouldn’t drop by 42 cents a gallon if both the federal and state taxes are eliminated.

“Oil companies, gasoline companies, they’re not going to drop their price that much,” he said. “They’re going to capture some of that. So we’re going to end up somewhere in between the current price and that current price minus 42 cents. There’s a lot of research on this, but the basic evidence is that the more supply-constrained things are, the more they’re going to capture.”

Horowitz said the president and the governor know a gas tax holiday will have limited impact. “There’s a reason that the Biden administration still endorsed this policy,” he said. “It’s not because he’s surrounded by people who think it’s a great economic policy. It’s because he’s surrounded by people who know it’s good politics. People are hurting and you want to demonstrate that you hear them, care about them, and you’re doing something.” 

Horowitz said some might say it would be better to take advantage of the high gas prices by subsidizing alternatives like electric vehicles or solar panels rather than trying to lower the price of gasoline.  

“You’re still creating an incentive for people to drive more,” he said of a gas tax holiday. 

Policy wonks differ on whether tax cuts are even warranted. The liberal-leaning Massachusetts Budget and Policy Center has made the case that the state’s current surplus isn’t as big as it appears and available funds should be used to address unmet needs.

The Center for State Policy Analysis thinks the state can afford tax relief. It issued a short paper detailing the dos and don’ts of cutting taxes – directing a tax break to people who really need it, making sure the tax break enhances the state’s competitiveness, and, to be on the safe side, going with temporary tax cuts when possible.

“The big challenge is time,” said Horowitz, noting the tax cut discussion has been kicking around Beacon Hill for six months yet no proposal has emerged yet from the Legislature. 

“I find it very hard this session and all sessions to distinguish two cases – one, where [lawmakers] really don’t want to do it so they’re dragging their feet, and two, they really want to do it at the last moment,” Horowitz said. “There are a lot of things that they want to do but they want to do it very, very late for some reason. It’s hard to know, even now. It’s June and the session ends at the end of July.”




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