With fuel costs near record highs, politicians are keen to help Americans save some money when filling up their fuel tanks. Two states provide a good model for how to do this…while the Biden administration and California consider going the wrong way.

In Maryland and Georgia, governments will temporarily forgo their cut of gas sales so that people can pay less when filling up their tanks.

Georgia Gov. Brian Kemp, a Republican, has signed a bill to pause the state's gasoline tax, which is $0.29 cents per gallon, and its diesel fuel tax, which is almost $0.33 cents per gallon, through May. And Maryland Gov. Larry Hogan, also a Republican, has approved a suspension of his state's gas and diesel fuel taxes—$0.36 cents per gallon and nearly $0.37 cents per gallon respectively—for the next 30 days.

They aren't the only two states considering a consumer break on gas taxes, either. "Lawmakers in Illinois, Massachusetts, Maine, Michigan, Minnesota, New York and Tennessee are also weighing whether to suspend their state taxes on gasoline," the Wall Street Journal reports. "Connecticut Gov. Ned Lamont, a Democrat, and legislative leaders have also reached an agreement to pause state collections on gasoline taxes through the end of June."

"And at the federal level, some members of Congress are calling on the Biden administration to suspend federal taxes on fuel," notes the Journal.

This is arguably the good side of government action to reduce fuel prices—saving consumers money by temporarily forgoing taking some of their money.

Gas taxes are relatively targeted at transportation and road-related spending, however, so decreasing that tax revenue without decreasing spending just means making up for it somewhere else. Drivers may save a little at the pump, but end up having to pay higher taxes later to close the deficit created by these tax holidays.

There's also something inherently gimmicky about temporarily suspending gas taxes in response to political pressure. (And it's a bit ironic that Democrats want to reduce gas prices now after arguing for years that higher gas prices were good for environmental reasons.) But saving consumers money by temporarily forgoing taking some of their money is arguably a better plan than simply handing out cash in hopes of stopping inflation.

Which bring us to the flip side, with some officials wanting to save consumers money by subsidizing gas purchases. The Biden administration briefly considered sending gas cards to people, though ultimately decided it was not a good idea.

Some have complained that suspending fuel taxes is too little help. But a break of some $0.30 per gallon—or more if the feds suspend gas taxes, too—adds up. It also tailors the price break toward the amount of gas purchased, instead of assuming everyone has the same fuel needs. It might not be a major break, or help drive gas prices down across the board, but it has the big advantage of being less likely to drive up gas prices even further.

But handing out government money to thwart high gas prices is like—pardon the pun—pouring gasoline on a fire. More government spending means more inflation. More consumers getting "free gas" means more gas purchases and, again, more inflation. Besides, the plan would be hard to target toward people who really need the help and not all sorts of people who can afford the higher prices and/or don't buy much or any gas. And it would be hard to prevent fraud.

The good news is that House Democrats "vehemently opposed" the gas card idea, according to Axios:

A House Democratic counsel on Wednesday laid out for the White House a list of reasons why gas cards would be a bad idea, including:

  • It would be expensive and poorly targeted.
  • It could worsen inflation and wouldn't do much to lower costs.
  • Delivering the cards would be a slow process that could bog down the IRS in the middle of the filing season, potentially delaying people's tax returns.

California, however, is still considering a $400 gas rebate which would functionally be like a "free gas" card, since it would go to anyone in the state who pays income taxes.

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