July 10, 2006
New Study Criticizes Gas Tax Holidays, Calls for Permanent Broad-Based Tax Policies
For immediate release
Media contact: William Ahern (202) 464-5101
Washington, D.C.—Gas tax “holidays” are a poor form of tax relief, according to a new study from the Tax Foundation.
“Compared with other types of tax relief, tax holidays reduce the efficiency of the tax system and the overall economy,” says economist Jonathan Williams, co-author of the new report with economist Andrew Chamberlain.
Florida added gasoline to its collection of holiday items in 2004, Georgia enacted a gas tax holiday in 2005, and Illinois is among a number of states where prominent lawmakers are attempting to enact such a law.
Gas tax holidays are intended to lower gas prices at the pump. However, a 1-cent temporary gas tax holiday will not automatically lead to a 1-cent decrease in retail gas prices, making holidays an ineffective way to reduce retail gas prices.
In an effort to force retailers to pass along tax savings to consumers, lawmakers often enact gas tax holidays with complex accompanying rules and regulations requiring gas stations to lower retail prices by the full amount of the tax cut—effectively levying a price ceiling on the retail price of gas.
For example, Georgia’s 2005 gas tax holiday required gasoline sellers and distributors to pass on the full value of the tax holiday in the form of artificially lower prices. Failure to charge that lower price constituted an “unfair or deceptive act or practice” under the state’s Fair Business Practices Act, subjecting companies to intense legal scrutiny.
Gas tax holidays create administrative complexity, distort market pricing, and distract the public from superior tax relief measures.
“A broad-based tax cuts on sales would stimulate a state’s entire economy and leave consumers with more money to spend on whatever they need, including gasoline,” said Chamberlain. “That’s a far better response to rising gasoline prices than a brief tax holiday.”
The report is Number 61 in the Tax Foundation’s Fiscal Fact series, titled, “Temporary Gasoline Tax Holidays: Relief for Motorists or Poor Tax Policy?” available online at
www.taxfoundation.org/publications/show/1689.html.
Best known for its annual calculation of Tax Freedom Day®, the Tax Foundation is a nonpartisan, nonprofit organization that has monitored fiscal policy at the federal, state and local levels since 1937.
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(For more information please contact William Ahern at (202) 464-5101.)
