GOP Gas Tax Bill Stalled As Prices Continue Rising
Add comment May 7th, 2008
As of this writing, the price of a gallon of unleaded gasoline in Rockford was $3.70 a gallon. In St. Louis, it was $3.60.
You might wonder why I bring up St. Louis’ gas prices, aside from the 10-cent difference. That’s because I grew up just across the river from Missouri’s largest city, and I lived close enough to hop on the Clark Bridge to drive a couple hundred feet to a gas station that made its profits almost solely off Illinois drivers like myself.
State gas taxes are the primary reason for such price jumps across state lines, according to a piece in Tuesday’s New York Times. And although oil hit $123 a barrel Tuesday, that number is not the only factor for the prices we see reflected on gas stations’ signs. Federal and state taxes play a part as well. Check out this great graphic from the Times’ story to see a state-by-state comparison.
We’ve heard a lot about how two presidential candidates want to temporarily slash the federal tax, and in Illinois, state Republicans are calling for the state to reduce its portion of the gas tax for the summer months.
State lawmakers did something similar in 2000, but how much money did this really save Illinoisans? Register Star’s Thomas V. Bona told us about this topic on Tuesday:
The average Illinois motorist saved only $20 from the tax break, or about the price of a tank of gas back then, according to a report by the American Road & Transportation Builders Association. While the state eliminated 7.5 cents a gallon in taxes, prices only fell about 4 cents per gallon on average.
David Bauer, the group’s senior vice president for government affairs, said gas prices aren’t significantly affected by tax rates, because they make up a fraction of the overall price. Prices dropped immediately after the Illinois tax break went into effect, but then people started driving more and prices rose back up.
“I think the economics are still the same,” Bauer said. “The price of something is where it is because of the laws of supply and demand, and the laws of supply and demand are going to be in effect whether or not you take away the sales tax or the gas tax.”
This idea is nothing new to states, and as gas prices continue to climb, more states are considering some version of this proposal. From the Times’ piece:
If experience with such gas tax “holidays” is any guide, drivers would save less than politicians suggest. But that is not necessarily the point.
“It’s about trying to serve the people and trying to understand and have caring, compassionate hearts for what they’re dealing with at the kitchen table,” said (Republican Florida Gov. Charlie Crist.)
The American Road and Transportation Builders Association told the Times that Illinoisans only saved $2.50 a month during the state’s last gas tax break. And other states have seen problems with such a proposal:
When Illinois and Indiana suspended about 7 cents of their state gas taxes in the summer of 2000, prices fell by an average of only 4 cents, according to a study by the American Road and Transportation Builders Association, which opposed the plans. Drivers saved no more than $2.50 a month, while each state lost tens of millions of dollars in tax revenue.
Previous gas tax holidays caused other problems, too. During the last gas tax suspension in Florida in 2004, people hoarded gasoline, driving up demand and prices.
Besides the price issue, one has to consider the other consequences of a tax break like this in Illinois, no matter how brief. Here, the state’s road fund, which is used to fix things like potholes, gets money from the state’s portion of the gas tax. This is one reason Illinois House Democrats don’t want to entertain the idea. With no resolution to a capital plan in sight, Illinois could be headed into its 10-year anniversary since passing its last major construction program, which could mean this road fund would be more important than ever before.
The GOP’s bill seems to have stalled in the House, but another New York Times story seems to think there might be relief coming by June anyway.
And here’s a fun quote about gas prices to ponder from the Times’ article coming from John Felmy, the chief economist from the American Petroleum Institute:
“It clearly evokes a visceral response because we’re the only industry that has our prices in two-foot-high letters on the street corner. We’ve seen other things go up in prices, like milk, but if you ask 10 people on the street what’s the price of milk they may not know. All of them will know the price of gas.”
