Are gas prices falling? Why a gas tax holiday hurts the economy | Opinion

Maybe now we will stop hearing nonsense about the need for a gas tax exemption.

Earlier this week, AAA reported that gasoline prices fell below $4 a gallon in much of the country (not in Utah, though, where they averaged $4.65 on Friday. , according to AAA). That’s still well above the national average price a year ago, which was $3.19, and that’s miles away from the $1.15 a gallon recorded in Salina, Utah, at dawn. of the pandemic on April 23, 2020.

You remember ? Probably not, because you were stuck at home with nowhere to drive as the economy stalled.

Gas prices could be a ride at Disneyland, comparable to the old Tower of Terror. But the terror is not necessarily limited to the prices themselves.

If you’re in political office, the urge to resist caution can be overwhelming. Almost everyone who votes drives, and despite the well-meaning efforts of many policymakers, almost everyone who drives still has a gas-powered car. When the price goes up, politicians feel a strong need to do something – even, apparently, if that something does more harm than good.

Thus, petrol tax holidays – periods during which national petrol taxes are suspended – have become popular.

As prices peaked earlier this year, talk even swirled about enacting a federal gasoline tax exemption. For once, Washington’s dysfunction came in handy. But even some members of the Utah legislature have started talking about suspending taxes for a season.

Now we can hope that the conversation will go away, at least for a while.

A new report from the Tax Foundation in Washington shows why that would have been a bad idea, and why states that have adopted them over the years — whether for gasoline or other targeted purchases (school supplies, for example) — did not benefit from it.

“Sales tax holidays introduce unjustifiable government distortions into the economy without delivering a significant boost to the economy,” the report said. “They represent a real cost for companies without bringing substantial benefits. They are also an inefficient way to help low-income consumers and an inefficient way to provide savings to consumers.

The problem, of course, is that it won’t fit on a bumper sticker. And if it was, few people would understand it. “Pay less for a gallon of gas,” on the other hand, resonates with almost everyone.

Politicians will say that tax exemptions stimulate economic growth. People will buy more of a thing that costs less. But today’s economy, crazy as it is, is not suffering from a lack of demand. A series of bottlenecks, from failures in supply chains to OPEC’s reluctance to increase production to drilling limits in the United States, have limited supply.

A tax break on gasoline could then increase prices by further stimulating demand.

The most obvious problem, of course, is that tax exemptions rob governments of the taxes they relied on for various programs. In the case of gasoline taxes, they mean less for road maintenance and construction.

The study found that some jurisdictions — the District of Columbia, North Carolina and Georgia — stopped using tax exemptions because they found them too expensive. He said: “…experience shows that claims of economic stimulus, increased incomes and consumer savings are greatly exaggerated.”

Far better for governments, including Congress and the White House, to focus on increasing gas supplies, or enact long-term tax reforms that give businesses the reassurances they need to invest. in production capacity. They won’t because of temporary tax gimmicks.

The study indicates that 17 states plan to hold tax exemptions in 2022, whether for clothing sales, school supplies, computer sales or energy costs.

This is two less than in 2010, the height of enthusiasm.

The price of gasoline will likely always be paramount to political “do something” because it tends to be used as an argument to vote for or against a candidate. In reality, it is subject to a variety of factors which today include the reluctance of oil companies and oil-producing countries to increase supply, the war in Ukraine and the international market. Currently, the slowing economy appears to be reducing demand, contributing to the decline.

Gas tends to be cheap when we need it least and more expensive when we need it most.

Politics rarely pivots on nuanced explanations or studies from economists, especially during election years.

That’s why Utahans, and all Americans, should be happy that lower prices are pushing gas tax exemptions aside, at least for now.

About Wilhelmina Go

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