Infrastructure Update: Proposals Emerge Calling For Gas Tax Cuts

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Hello and welcome back to Route Fifty's Infrastructure Update, I'm Dan Vock. Today, we're looking at a surprising proposal from Florida Gov. Ron DeSantis, who wants the state legislature to basically suspend the state's gas tax for half a year. DeSantis is a Republican and his plan mirrors other GOP efforts to slash taxes. But some Democrats—including one of DeSantis' opponents in next year's gubernatorial election—are also voicing interest in giving motorists a break at the pump.  

The idea of rolling back gas taxes is rare, and experts on both ends of the political spectrum raise questions about whether it's a smart policy choice. 

For the last decade, state lawmakers have been far more willing than their federal counterparts to raise fuel taxes to pay for roads and other transportation programs. Perhaps the closest other states have come to doing something like what DeSantis has proposed is when Illinois temporarily suspended its sales tax on gasoline 20 years ago, and Indiana took similar actions at the time, according to Carl Davis, research director at the Institute on Taxation and Economic Policy, a left-leaning think tank.

"It's definitely a departure from the way the gas tax has been talked about," he said. Davis has tracked state gas tax rates for years. Increasingly, states have set up their fuel taxes to automatically increase with inflation, so they can continue to generate enough money to pay for needed improvements, he noted.

Congress hasn't increased the federal gas tax since 1993, and found other ways to pay for the major infrastructure bill that President Biden signed in November.

'Getting Creative' With Surpluses

If you look at DeSantis' proposal more as tax policy than as transportation policy, a gas tax suspension is in line with recent attempts by Republican state officials to reduce taxes. At least 11 states, for example, reduced personal income tax rates this year. Florida does not have a personal income tax, but its corporate tax rates have decreased automatically as its revenues have grown.

Meanwhile, the federal government is funneling billions in pandemic aid to states under the American Rescue Plan Act, and the new infrastructure law will beef up funding going to states for transportation and other public works. On top of that, the pandemic didn't cause tax revenues in most states to collapse as initially feared.

"States have a surprising problem right now: They have more money than they know what to do with," said Jared Walczak, the vice president of state projects for the Tax Foundation, which promotes business friendly policies. "So states are getting creative in how they're spending their surpluses."

The gas tax is a politically popular target; plus it's a lot easier to adjust than it would be to rewrite most parts of the tax code, Walczak explained.

If all goes according to DeSantis' plan, Florida drivers would start paying less for their gas next July, when the state's next fiscal year starts. This would save the average two-car household about $200 over the six months, according to his office.

The governor says the $1 billion to pay for the gas tax reprieve would be covered by higher revenues the state is collecting from other taxes.

"The main goal is to offer relief from high gas prices," wrote Christina Pushaw, DeSantis' press secretary, in an email. "We do not anticipate gas prices decreasing significantly (back to last year's levels) in the next 6 to 12 months," she added, blaming increased federal spending for contributing to rising prices for a range of goods. (There's debate over how much government spending is contributing to inflation.) 

Interest Among Democrats

DeSantis' call to temporarily wipe out the gas tax came after former Florida Gov. Charlie Crist, who is running as a Democrat to unseat DeSantis in next year's election, called for a "gas tax holiday" this winter.

"It's time [DeSantis] turned his attention to the real issues facing Floridians," Crist said in a statement last month. "The governor and the legislature should suspend the state gas tax for the rest of the year so that we can finally offer relief to hard-working Floridians and mom-and-pop small businesses being squeezed at the pump."

Other Democrats nationwide have talked about rolling back gas taxes too. Joe Cunningham, a Democrat running for governor in South Carolina, has picked up on the issue. Former U.S. Rep. Abby Finkenauer of Iowa, who is mounting a challenge to U.S. Sen. Charles Grassley, wants to suspend the federal gas tax.

In New York, several Republican lawmakers in Albany are urging Gov. Kathy Hochul to suspend the gas tax there, as well.

Is It Smart Policy?

Politics aside, tax experts say targeting the gas tax is not an effective way to use tax cuts.

Walczak from the Tax Foundation said fuel taxes are a "good tax" because they are efficient and because they help users pay for the benefits they get.

"The good part is that it puts more money back in taxpayers' pockets. The problem is it doesn't do so in a way that encourages economic growth," he said. People tend to drive the same amount in the short term, regardless of how high gas taxes are, he explained. Reducing gas taxes is "not encouraging [people] to work more, invest more, or make the sort of decisions that can drive economic growth."

Davis, from the Institute on Taxation and Economic Policy, also said that reducing gas taxes helps out wealthy taxpayers who might not need the economic boost, and benefits tourists who may not even live in Florida.

But Pushaw, DeSantis' press secretary, argued that reducing gas taxes would help people disproportionately affected by high gas prices.

"We do not believe that anyone should have to pay more at the pump just because they might be able to afford a higher price," she wrote.

"Moreover," Pushaw added, "elevated gas prices disproportionately affect lower-income and middle-class Floridians, who live on a budget. People who live in rural areas are especially hit hard, because of the necessity of driving long distances, as well as suburban residents who commute significant distances to their jobs."

"We would rather have everyone pay less for gas," she said.

Pushaw also said the governor doesn't consider it a drawback that tourists would benefit. The tourists, after all, spend billions of dollars to help the state economy. "Of course," she added, "most people who will benefit from this tax relief will be Florida residents."

That's it for this week's edition. If you haven't already, consider signing up here for Route Fifty Today, our daily newsletter, where you can stay up to date on the latest trends and best practices happening in state and local government nationwide. If you have news tips or feedback, if you want to share your community's story, or if you just want to say hello, please email us at: editor@routefifty.com. Thanks for reading!