As Congress Dawdles, States Eye Gas Sales Tax Cuts

After voters rejected Motor Fuels Tax (MFT) increases in 2014 and 2018, Missouri lawmakers in 2021 agreed to raise the state’s 17-cents per gallon gas levy—the nation’s second-lowest—by 2.5 cents a year until it reached 29.5-cents a gallon in 2025.

The first of those five annual 2.5 cents per gallon tax hikes went into effect on Oct. 1.

The increases were the first since 1996 and would generate an additional $513 million in annual revenues by 2025 for the Missouri Department of Transportation, which was reporting $825 million in unfunded transportation priorities annually before state lawmakers adopted Senate Bill 262 last year.

But with fuel prices increasing dramatically—the average price for a gallon of regular unleaded gas in the United States was $4.32 per gallon on March 15, 84 cents higher than two months ago, according to an AAA survey—and likely to stay high in the coming months, two bills related to Missouri’s 2021 MFT increase have been filed.

House Bill 1594, filed by Rep. Sara Walsh (R-Ashland), seeks to repeal the 2021 MFT bill before the next Oct. 1 incremental 2.5-cent hike.

The bill was pre-filed in December and addresses general angst over the increase and was not expected to advance, but with Russia’s invasion of Ukraine roiling the global oil market, it is gaining traction.

It advanced narrowly through stiff opposition in the second of two committee approvals on Feb. 25 and will be debated on the House floor when the chamber returns to Springfield in April.

A second Missouri bill, HB 2801, proposes a six-month “gas sales tax holiday.”

Filed on March 10 by Rep. Adam Schwadron (R-St. Charles), the measure will be heard before the House Special Committee on Government Oversight on March 22.

What is happening in Missouri is happening in state capitals nationwide as governors and lawmakers ponder ways to cut fuel costs for stressed consumers in the likely absence of federal or Congressional actions.

“I believe the long-term fix for rising motor fuel prices is continuing on the path toward American energy independence by making use of all of America’s natural resources,”  Schwadron said in a statement introducing HB 2801.

“However, in this time of crisis, we cannot wait to take action to relieve consumers in Missouri of the rapidly increasing prices at the pump.”

A federal bill, the Gas Prices Relief Act of 2022, was filed Feb. 9 before the Russo-Ukraine war in the U.S. Senate by Sen. Mark Kelly (D-Arizona).

It has since gained five Democratic co-sponsors and a House companion bill filed by Rep. Tom O’Halleran (D-Arizona), with 15 Democratic co-sponsors, but little support from Republicans.

The bills call for the suspension of the federal 18.4 cents per gallon MFT. Neither has been heard in committee yet.

Last week, six Democratic governors of Colorado, Michigan, Minnesota, New Mexico, Pennsylvania and Wisconsin—all seeking reelection in 2022—in a letter to congressional leaders urged quick adoption of the bills to “pause” the federal MFT for the rest of the year.

The bill would divert general fund money into the federal Highway Trust Fund to replace MFT revenues, which “translates into dollars back in consumers’ pockets for groceries, child care, rent and more,” the governors wrote.

The Biden administration has thus far avoided in-depth discussion of lifting the federal MFT and instead is urging greater oil production across the globe and is considering tapping into the nation’s Strategic Petroleum Reserve.

How effective trimming federal and state MFTs will be in significantly lowering costs for drivers is a matter of debate.

According to a 2020 American Road & Transportation Builders Association analysis of 113 recently-enacted state gas tax changes, consumers would only see about one-third of that cut materialize at the pump.

Other critics—including the building trade industries—say such actions are short-sighted knee-jerks that would cause long-term damage to state budgets and divert up to $20 billion infrastructure development plans.

They warn suspending the MFT would set a poor precedent and be politically difficult to restore.

Among concerns with such legislation is that gas stations won’t necessarily lower prices accordingly and the federal sales tax cut only shaves a bit off costs consumers are paying at the pump.

For instance, a car that averages 25 miles per gallon and drives 12,000 miles would only save about $70 if the federal MFT was suspended for the rest of 2022.

Therefore, proponents say, a federal MFT cut would be of marginal value unless accompanied by state MFT trims because all states but Alaska have higher gas sales taxes than the federal 18.4 cent levy.

According to an analysis by IGEN Networks, the average state MFT tax is 29.15 cents per gallon.

Twenty-three states have gas taxes higher than that average and 27 states lower than that average. The five states with the highest gas taxes are: Pennsylvania (0.586), California (0.533), Washington (0.519), New Jersey ($0.414), and New York.

But with many states ending 2021 fiscal years in July with surpluses and record cash balances from federal pandemic aid assistance packages adopted over the past two years, at least 30 governors and state legislatures are considering “gas tax holidays” with Maryland among the first likely to do so.

Republican Gov. Larry Hogan said on March 10 that Maryland’s strong revenue estimates and $7.5 billion budget surplus will allow the state to suspend its 36 cent MFT by the end of this week.

Maryland legislators have fast-tracked a bill to suspend the state gas tax for 30 days that could be adopted this week.

In Georgia, Republican Gov. Brian Kemp also said last week that he would approve any effort by the general assembly to suspend the state’s 29 cent MFT.

The Georgia House on March 11 passed HB 304, a fast-tracked bill to lift the state’s MFT through May 31. The Senate Finance Committee unanimously passed the bill on March 15 and it is set for a Senate chamber vote and dispatch to Kemp’s desk also this week.

Other states:

Michigan: The state Senate on March 15 approved a bill already adopted by the House suspending the state’s 27.2-cent MFT for six months in 24-14 vote. However, because chamber passages failed to secure two-thirds majorities, the freeze won’t happen before 2023, meaning it is likely to be vetoed by Democratic Gov. Gretchen Whitmer despite the state having a $7 billion revenue surplus.

Illinois: Democratic Gov. J.B. Pritzker has proposed delaying the state’s annual automatic 2.2-cent MFT increase in July. Lawmakers may introduce a bill that would cap the state’s 39.2 cent gas tax at 18¢ per gallon.

Mississippi: Republican Lt. Gov. Delbert Hosemann  announced March 14 he would work with lawmakers to suspend the state’s 18.4 cent MFT and provide the state’s Department of Transportation with $215 million to compensate for projected revenue losses.

California: Democratic Gov. Gavin Newsom last week called for a tax rebate to help Californians cope with the nation’s highest gas prices that are, in some parts of the state, nearing $6 a gallon, and also recommended delaying a gas tax increase planned for this year. A bill has been introduced to suspend the state’s 51-cent MFT but supporters on March 14 failed to get the needed votes to fast-track the measure. Senate President Pro Tem Toni Atkins and Assembly Speaker Anthony Rendon in a joint statement said they will propose tax relief for state taxpayers come from the general fund, noting “a small cut to the gas tax that might not get passed on to consumers.”

Pennsylvania: Bills to temporarily cut or suspend the Pennsylvania’s MFT—at 57.6 cents it is the nation’s highest—have been filed in both chambers with Senate President Pro Tempore Jake Corman’s (R-Bellefonte) sponsoring the most likely package to advance. The proposed Consumer Gas Prices Relief Act would lower the MFT by one-third (19 cents) which, in tandem with a federal MFT freeze, “could reduce total fuel taxes on consumers by nearly 50 percent,” writes Corman, among Republicans seeking the 2022 GOP gubernatorial nod, in a March 9 letter.

Virginia: Lawmakers are negotiating a proposal that would suspend a recent gas-tax hike for one year but no legislation cutting or suspending the MFT is on the front burner. Republican Gov. Glenn Youngkin proposed a 5-cent MFT in his successful gubernatorial campaign and the Republican-controlled House included a 5-cent gasoline tax cut in its budget proposal, but the Democrat-controlled Senate did not.

Florida: Republican Gov. Ron DeSantis has proposed a five-month pause on the state’s MFT but would need to do so through executive action or call lawmakers back to Tallahassee. The $110 billion budget passed by lawmakers this week includes a one-month fuel tax holiday in October.

Alaska: On March 11, Republican Gov. Mike Dunleavy asked state legislators to suspend the state’s 8 cent MFT—the nation’s lowest—until the end of June 2023 and the Senate unanimously passed a non-binding resolution in support. “Oil prices are at record levels, and, unlike the high oil price environment of 2007-2014, this climb is occurring with concurrent increases in all costs of living,” Dunleavy said in a statement. “The transfer of wealth from Alaskans to the state treasury must have some equitability restored to it.” Dunleavy’s proposal, filed as a budget amendment, could be heard this week and adopted by next.

Colorado: Democratic Gov. Jared Polis, among state chief executives lobbying Congress for action, has also called on Colorado lawmakers to delay implementing a 2-cent gas tax for infrastructure that goes into effect in July.

Connecticut: Democratic Gov. New Lamont on March 14 recommended suspending the state’s 25 cent MFT through June 30 and urged the General Assembly to enact the measure as soon as possible.

Idaho: State lawmakers are pondering bills that would trim the state’s 32 cent MFT for up to two years.

Maine: A bill has been introduced to suspend the state’s 30 cent MFT through the end of the calendar year. Last week, former Republican Gov. Paul LePage called on Democratic Gov. Janet Mills—who he will likely opposed in November’s gubernatorial election–to slash the starters MFT by least 50 percent for six months.

Minnesota: Six Democratic-Farmer-Labor Party (DFL) lawmakers have filed a proposed bill that would suspend the state’s 28.5 cent MFT from Memorial Day to Labor Day. In tandem with a federal cut, the bill would trim gallon prices by 47 cents. The $70 million a month in revenue the state would not collect could be replaced by transfers from Minnesota’s $9.25 billion budget surplus. Democratic Gov. Tim Walz, one of the six governors calling for Congressional action, said he would support the measure.

New Jersey: Some state legislators say allowing motorists to pump their own fuel, outlawed in New Jersey for 73 years, will reduce costs at the pump and others have introduced bills that would provide $250 to $500 tax rebates for residents.

New York: Democratic Gov. Kathy Hochul has been non-committal about numerous proposals surfacing in Albany to lower fuel costs. One measure would cap the state’s gas tax at 25 cent per gallon gas tax—New York charges a 17.3 cents per gallon petroleum business tax and an 8-cent MFT—at 8 cents. Others call for suspending the tax for specific three or six month spans. The state Senate on March 15 agreed to temporarily freeze some gas tax levies, about 16 cents per gallon, in its proposed Fiscal Year 2023 budget. Under the plan, portions of the state’s gas taxes would be suspended beginning May 1 through year’s end.

Ohio: Senate Bill 277 would lower Ohio’s 38.5 cent MFT to 28 cents per gallon for five years, but it is uncertain if Republican Gov. Mike DeWine is on board with the proposal.

Oregon: Democratic Gov. Kate Brown has let lawmakers know the state should not consider pausing its 38 cent MFT, at least until the repercussions for state revenue collections and infrastructure funding are better understood. Oregon’s MFT increased by 2 cents in January as part of a 2017 plan to raise gas taxes 10 cents a gallon by 2024 to generate infrastructure funding.

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