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No, a gas tax holiday does not guarantee lower gas prices

Some states like Maryland have decided to try offering some relief at the pump by temporarily ending the gas tax. But that won't necessarily bring down prices.

MARYLAND, USA — Maryland Gov. Larry Hogan signed a bipartisan bill into law Friday to suspend Maryland's gas tax through April 16. It's a popular tactic that several states have floated to try to alleviate the sky-high prices at pumps across the country.

But here's the real question here—will it work?

THE QUESTION

Will a gas tax holiday automatically make a gallon of gas cheaper?

OUR SOURCES

  • Clifford Winston, Senior Fellow of Economic Studies at the Brookings Institution
  • Chris Edwards, Director of Tax Policy Studies at the CATO Institute
  • Ed Hirs, Energy Economics Professor, University of Houston
  • Mark Finley, Energy and Global Oil Fellow, Rice University’s Baker Institute for Public Policy

THE ANSWER

This is false.

No, there is nothing in place that guarantees gas retailers will reduce their prices in the event of a gas tax holiday. Experts say gas may get cheaper for some consumers, but not significantly and not for everyone.

WHAT WE FOUND

In a perfect world, a $0.36 reduction in gas prices would hit everyone equally. However, outside of a vacuum, it's not that simple. 

"Who bears the tax and how it's passed on is not a straightforward issue," Winston said. "I think there's the expectation that some of the reduction in the federal gas tax would filter down a bit to consumers, but not all of it." 

Gas taxes are most often levied at the refinery. That means for consumers to feel the effects of a gas tax holiday, distributors, retailers and everyone in between would need to join hands to reduce their prices at every level. And that's just not guaranteed. 

"If everybody passed it along penny for penny, the consumer would benefit. But there's no mandatory behavior requirements here that are imposed upon the distributors and the retailers," Hirs explained. 

RELATED: Find the lowest gas prices in the Washington, D.C. area

In Maryland's case, Comptroller Peter Franchot claims he's convinced every gas retailer in the state to pass on the tax break to consumers. However, it appears there is no legal requirement for them to do so.

On top of this complication are all the regular economic complications that come with gas prices—crude oil prices, distribution costs, the local supply of gas and even competition between local gas stations can keep pushing prices up and down despite a change in taxes. It's also possible that the idea of a tax cut drives up demand, which would drive prices right back up.

Global crude oil prices are the top indicator for the consumer cost of gas. As countries and companies cut ties with Russian oil and China enters another COVID-19 lockdown, the global market is bound to be a rollercoaster for the next several months.

"Events in Ukraine and elsewhere in the world are so volatile now that gas prices are jumping around," Edwards said. "Either way, motorists are likely to see high gas prices, at least for the rest of this year, over $3 a gallon. Unfortunately, there's no real good short-term relief here."

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