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ELIOT SCHIAPARELLI, BYLINE:
Motorists in Connecticut could soon have some relief from high gas prices. Yesterday, the state legislature passed a gas tax holiday…a three month break from state taxes collected at the pump.
Other states including Maryland and Georgia have also proposed or passed gas tax cuts.
Zheli He is an economist with The University of Pennsylvania’s Penn Wharton Budget Model. She and her colleagues analyzed what a suspension of the federal gas tax would mean for consumers. I asked her just how much gas tax cuts could save drivers.
ZHELI HE:
What we find is, if we suspend the federal gasoline tax from March to December this year, it will lower the average gasoline spending per capita by between $16 and $47 depending on the modeling assumption, but at the same time, it's going to lower the federal tax revenue by around $20 billion over that period.
SCHIAPARELLI:
Break that down for me again. So if the federal government lowers the tax… consumers aren’t necessarily going to see the full amount of that tax decrease?
HE:
It's unlikely that users will pass the entire savings to consumers in the form of lower prices. So what you will see is, the prices would reduce by a smaller amount, compared to the amount of the suspended taxes. The tax burden is going to be shared between the consumers and producers. And typically, it really depends on how the market in gasoline works. So usually more of the tax burden falls on the market where people are less able to respond. Demand for gasoline in the short run is pretty inelastic. So that basically means consumers it's not easy for them to lower their consumption in response to higher prices. So some of them have to drive to work. And that's their main mode of transportation. So it's not easy to switch to different transportation modes. So in that case, producers basically don't have to lower the price as much because they know consumers don't have as much room to respond. And so in that case, they will only pass and have or just a portion of the lower taxes to consumers in the form of lower prices.
SCHIAPARELLI:
Will the loss of this revenue affect government spending on infrastructure and highways and how can consumers expect to see that?
HE:
So basically, the revenue from the federal gasoline tax is used for the Highway Trust Fund and that helps to finance almost most of the government spending highway and also mass transit. So with a loss of $20 billion over the banks, it's going to have a huge impact on the solvency of the trust fund. And it has already been experiencing some issues with not enough revenue. And so we will definitely see a problem with the Highway Trust Fund. And that will, again, just have a negative impact on the amount of finances for the highway and mass transit, when really we need it the most.
SCHIAPARELLI:
Since gas taxes are such a small overall part of the price of gas is there a better way to decrease the price of gas than to change the taxes?
HE:
The price of crude oil is one of the biggest factors that affect the retail price of gasoline. And we know that oil prices have also been surging recently. So it reached over $130 per barrel at one time recently. And so that's basically again, due to how the market works. So back at the onset of the pandemic, a lot of producers reduced their output significantly, right, because the demand for say, diesel gasoline dropped a lot because of the lockdowns and more economies opened up and demand quickly just outpaced supply. And producers have been having a hard time trying to catch up with the increased demand. So a lot of oil companies have decided not to increase drilling, and just because of fear of a collapse in prices. And so I mentioned earlier, gasoline demand is pretty stable in the short run. So the best way to keep prices in check will be to increase supply. And so the US and also some International Energy Agency member countries have agreed to release 60 million barrels from their emergency stockpiles. So that will increase supply and that will be helpful.
SCHIAPARELLI:
Zheli He, Thank you
HE:
Thank you so much for having me
Eliot Schiaparelli, Columbia Radio News
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