Do "gas tax holidays" work?


President Joe Biden recently "called on Congress to suspend the federal gasoline tax" for 90 days. The federal gas tax is 18 cents per gallon.

The move quickly was met with pushback from leading Republicans, in true partisan fashion. Senate Minority Leader Mitch McConnell called it "an ineffective stunt."

"I have a better idea: Democrats could stop setting off inflationary spirals, stop proposing massive tax hikes on the brink of a recession, stop waging a holy war against American fossil fuels, and stop applauding the pain that working families are feeling as part of some grand left-wing ‘transition,'" McConnell said. 

Biden also received some pushback from within his own party, however, and the gas tax suspension appears to be a long shot to make it through both houses of Congress and reach the president's desk.

So, do gas tax suspensions or holidays actually work? An article in Forbes asserted that it"probably won't work," basically saying that relatively cheaper gas would equal relatively higher demand from motorists, thus cancelling out the tax cut.

Read the article: "Gasoline isn’t actually priced according to the notion floated above. In fact, gasoline is a commodity that is priced in the market. Instead of adding up the inputs, including a profit margin, and then adding in the gas taxes, the profit margin floats up and down with the price, which is based on supply and demand. That’s a fundamentally different model, which also explains why oil company profit margins are so volatile."

An interesting case study would be here in Georgia. Gov. Brian Kemp in late May sidestepped the General Assembly and signed an executive order that suspended Georgia's state gas tax, 29.1 cents per gallon.

So, how has it worked out in Georgia? Well, apparently there's been very little difference.

On the day that the executive order was signed, which was May 26, the average for a gallon of regular unleaded in Georgia was roughly $4.10, which compared to roughly $4.60, a difference of 50 cents. One month before the executive order, meanwhile, the cost was around $3.69 in Georgia and $4.10, a difference of 41 cents.

See the chart below...

Fast forward to yesterday, when the Georgia average was around $4.43 and $4.93, a difference of 50 cents.

What's happened in Georgia is just one example, and it can't prove definitively if gas tax suspensions work. In this case, however, the suspension had very little impact on the price of gas in Georgia, relative to the national price.

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