Gasoline in Georgia just got a little cheaper. Governor Brian P. Kemp (R) declared a State of Emergency in the Peach State, citing inflation and unfavorable economic conditions. The declaration allows him to temporarily suspend the state’s excise tax on motor and locomotive fuel.
The executive order went into effect on Sept. 13, 2023, at midnight and will remain in effect until 11:59 p.m. on Oct. 12, 2023. You can read Executive Order 09.12.23.01 here.
According to Kemp’s office, the suspension will save Georgians 31.2 cents per gallon of gasoline and 35 cents per gallon of diesel fuel.
This is Georgia’s second run at a gas tax holiday in as many years. In 2022, the gas tax was suspended from March through December. According to Kemp, Georgians saved about $1.7 billion at the pump.
Prior Year Gas Taxes
Last year, a few states suspended gas taxes in response to rising prices. In March 2022, Gov. Larry Hogan (R) of Maryland signed a bill authorizing a 30-day gas tax holiday (Comptroller Peter Franchot had proposed 90 days).
Like Maryland, Florida also had a 30-day gas tax holiday in 2022. The Florida Motor Fuel Tax Relief Act of 2022 reduced the tax rate on motor fuel by 25.3 cents per gallon. The tax rate reduction began on Oct. 1, 2022, and extended through Oct. 31, 2022.
Connecticut also passed a gas tax holiday in 2022. But rather than reinstate it all at once, the state gradually phased the tax back in the first half of 2023.
How Gas Taxes Work
We tend to think of tax holidays—like sales tax holidays—as immediate consumer savings. That’s not the case when it comes to gas taxes. The retail owner pays state gas tax when they buy the gasoline for resale—that’s when the gas goes into the pump. That tax is passed along to the consumer in the state as part of the price per gallon—it’s not a separate tax. In most cases, since the tax is paid at the original sale, a gas tax holiday means that a seller must apply for a refund. The expectation, but not the law, is that the savings are passed to the consumer.
Effects
A Wharton study suggests that, when it comes to gas tax holidays, prices do not always fall by the full amount of the suspended tax. That’s also a result of the nature of the holiday—the tax is at the supplier, not the consumer, level. As noted, suppliers aren’t necessarily required to pass the savings along.
The study took a look at three states that suspended taxes in 2022. They found that in Maryland, there was a decline in gasoline prices that was “statistically significant” initially—but after the holiday expired, gas prices in Maryland were higher than what they would have been if the holiday had never occurred. The price decline in Georgia was more gradual. And in Connecticut, gas prices declined immediately after the gas tax went into effect (though the fall shrank slowly after that).
Criticisms
While gas tax holidays can prove popular with taxpayers, there are some criticisms. One argument is that it disrupts the natural consequences of supply and demand—typically when supply is low, prices increase. But, critics say that a gas tax holiday creates an artificial incentive to increase consumption while low supply boosts demand.
Another criticism is that it reduces the funds available to state coffers for road improvements or general revenues. Typically, that can be problematic for cash-strapped states, but states were feeling flush in 2022 due to federal pandemic relief funds and an influx of sales tax (including bumps in online sales).
State Gas Taxes
Currently, the highest gas tax in the country belongs to California, which charges a whopping 77.9 cents per gallon (sales and excise taxes). That’s the result of 2017 legislation, the Road Repair and Accountability Act, which raised transportation-related taxes, including the state excise tax on fuel, and increases every year to adjust for inflation.
State Gas Tax Rates, cents per gallon, as of July 1, 2023
Illinois, Pennsylvania, Indiana, and Washington are next in line. Taxpayers pay the lowest gas tax rates in Alaska, Missouri, Mississippi, Hawaii, and Arizona.
Federal Taxes
President Biden called for a fuel tax holiday in 2022, but the idea didn’t have Congressional support. In February of 2022, Sens. Mark Kelly (D-AZ) and Maggie Hassan (D-NH) introduced legislation that would have created a federal gas tax holiday through Jan. 1, 2023, but many in the Senate, including Minority Whip John Thune (R-SD) suggested that Republicans would not support it. It did not advance.
The current federal gas tax is 18.4 cents per gallon (24.4 cents per gallon for diesel), a rate that hasn’t changed since 1993.
Rising Prices
According to AAA, the average cost of a gallon of regular gas nationwide is $3.848. Numbers have been on the way up due to a boost in the price of oil, the primary ingredient in gasoline. Driving that? Saudi Arabia announced plans to continue its voluntary cut in production through the end of the year. A limited supply means that oil prices could continue to rise if demand stays high (or goes higher).
It feels like everything is more expensive. Last month, inflation rose again—ironically, largely on the back of increased gas prices. According to the Department of Labor, the index for gasoline was the most significant contributor to the rise in prices, accounting for over half of the increase.