Don't Suspend the Gas Tax

It's bad climate and economic policy

Gas prices follow supply and demand.

On the supply side high prices are the result of Western Nations sanctioning Russia and its 7 million barrels of oil per day from the global market along with OPEC nations such as Saudi Arabia refusing to increase supply in order to profit from high prices.

On the demand side we’ve seen a return to pre pandemic levels of Vehicle Miles Traveled (VMT) in Maryland along with a global surge in oil demand as the world recovers from the Omicron Variant. But the States rush to enact a Gas Tax suspension for 30 days is premature. China is heading into a Covid wave which will reduce the global demand for oil and drive down prices. As of writing on Tuesday, March 15th, oil prices fell below $100 a barrel.

The current proposal to suspend the gas tax working its way through the state legislature shows a lack of economic literacy. Prices are high because supply is low and demand is high, a suspension of the gas tax would serve to increase demand causes prices to spike even higher. Subsidizing demand when prices are high is a common policy but as we’ve increasingly seen from other examples it fails to achieve its purpose. A notable parallel is housing where lots of state, local and federal governments subsidize rent for the poorest while doing little to increase supply. This causes rent prices to increase with most of the subsidy being captured by landlords. In a similar vain we’ve seen college tuition prices skyrocket because the Federal Government offer unlimited subsidy in the form of loans without doing anything to increase the supply of seats at the most expensive colleges. Suspending the gas tax will predictably cause the price of gas to go up even more while oil producers will capture as much as 30% of the subsidy.

The supply of oil is controlled by global corporations and dictatorships that decide how much they want to drill based on market conditions and is outside the powers of the Maryland State Legislature. But while the Legislature has no control over supply, it has influence over demand. Instead of enacting a gas tax suspension that would turbocharge demand, we should be looking for ways to reduce demand.

Maryland’s land use and transit policy has made it extremely sensitive to global price shocks in oil markets as the only way to get from point A to B in much of the state is to drive a car. Budget surpluses should go towards alternative transportation infrastructure such as bike lanes, pedestrian improvements and public transit. Giving people the freedom to choose the way they want to travel will make communities more resilient to future gas price increases. With a $7.5 billion dollar budget surplus expected, using $1 billion to blanket the state in protected bike lanes, expanded sidewalks, crosswalks, bus stops and electric buses would considerably reduce Marylander’s dependence on oil. Driver’s who have no plans to ever walk or take a bus would greatly benefit to. By giving people the freedom of choice in how they want to travel, lots of people would choose these alternatives dropping the number of cars on the road and decreasing traffic for people who prefer to drive. In addition to decreasing traffic, it would decrease demand for gas which would help with gas prices for drivers.

It’s true that many of the states poorest rely on a personal vehicle to get to work so any gas tax relief should be targeted towards those need it most rather than a blanket ban. Most people make a personal decision on the type of car they purchase. If an individual wants to drive an inefficient car such as a large truck or SUV that is their choice. But the State should not subsidize these decisions and should instead incentivize people towards more fuel efficient vehicles and Electric Vehicles.

A Gas Tax holiday is also in direct contradiction to the climate goals set by the State and legislative Democrats. Reducing vehicle miles traveled is critical to controlling transport carbon emissions. On one hand the State is pushing for solutions to climate change and on the other it’s trying to pass a policy that would increase carbon emissions. Reducing carbon emissions requires political courage and a gas tax suspension exposes a massive blind spot in the Legislatures understanding of climate change.

In addition to being bad climate and economic policy, a Gas Tax suspension will be a handout to the wealthiest residents of the State who consume considerably more gas than the poorest.

According to the Bureau of Labor Statistics Consumer Expenditure Survey, the top 20 percent of Americans by income spent almost three times more on gas in 2020 than the bottom 20 percent. They spent almost twice as much on gas as the second-lowest quintile.

Any suspension of the Gas Tax would disproportionaly benefit the wealthy who can comfortably afford higher gas prices.

In every crisis lies opportunity, and the Legislature should use this oil crisis as an opportunity to reduce the state long term dependence on oil rather than pass policies to make the problem worse.

Suspending the gas tax may sound good, but it’s a bad idea - Baltimore Sun

A Gas Tax Holiday Is a Terrible Idea - Slate

Suspending the Gas Tax Is a Mistake - Tax Foundation