Connecticut considers gas tax holiday extension

The state’s plan to extend the gas tax holiday has bipartisan support, although gas prices have fallen since the summer and some tax policy researchers say temporary tax breaks do little to reduce gas prices.
Cars line up at a Shell gas station June 17, 2022, in Miami. (AP Photo/Marta Lavandier, File)

Connecticut lawmakers are meeting Monday to consider extending the state’s gas tax holiday. The plan has bipartisan support, although gas prices have fallen since the summer and some tax policy researchers say temporary tax breaks do little to reduce gas prices.

Governors and lawmakers in at least eight states responded to rising gas prices this year by temporarily suspending or holding down gas taxes, which are typically paid by companies that supply fuel to gas stations. Other states have kept gas taxes in place.

Connecticut leaders who support the extension say although gas prices have fallen in recent months, the tax break will help residents cope with inflation.

“We’re still a little concerned about what may happen as we get into the colder winter months,” said Connecticut House Speaker Matt Ritter (D). He said extending the holiday would provide relief from rising prices across the economy.

“The bottom line is, it will help people just through other issues,” he said, “whether it’s inflation, or heating oil prices increasing in the Northeast.”

Connecticut lawmakers suspended the 25 cents-a-gallon motor fuel tax in April and later extended the tax break through Nov. 30.

Georgia leaders suspended their state’s 29 cents-a-gallon gas tax in March. New York leaders suspended several taxes imposed on gasoline, including sales taxes, in June. The tax holidays remain in effect in both states.

Maryland and Florida leaders suspended gas taxes for a month. Colorado leaders, Illinois leaders and Kentucky Gov. Andy Beshear (D) delayed scheduled gas tax increases until 2023.

The U.S. average price of regular gas peaked in mid-June at about $4.80 a gallon, according to the U.S. Energy Information Administration, a federal agency that tracks energy data. Regular gasoline costs $3.65 a gallon as of last week, about 25 cents more than this time last year.

It costs about $3.65 a gallon in Connecticut, according to AAA, a national travel membership organization that tracks gas prices.

It’s unclear how helpful gas tax holidays have been for consumers.

Gas tax holidays are “not an effective way to lower the price of gas, because the price of gas is largely determined by forces well beyond taxes,” said Richard Auxier, a senior policy associate at the Urban-Brookings Tax Policy Center, a nonpartisan Washington, D.C think tank.

Gas prices are mostly determined by the price of crude oil, according to EIA. Oil prices soared this year for a number of reasons, including the Russian invasion of Ukraine.

The structure of gas taxes is another complication, Auxier said. “Even if you suspend that gas tax, there is no guarantee that the benefit goes to the consumer,” he said. “There is nothing stopping the seller of that gasoline from pocketing all of that benefit.”

Motor fuel industry advocates say tax breaks do help consumers. “The tax impacts the final retail price. The lower the tax, the lower the final retail price,” said Michael Fox, executive director of Gasoline and Automotive Service Dealers of America, a Connecticut-based group that advocates for gas station owners.

The law enacting Connecticut’s tax holiday instructs gas stations to cut retail prices by the same amount as the tax. It warns them that failing to do so would constitute “an unfair or deceptive trade practice.”

Gov. Ned Lamont (D) now wants lawmakers to gradually reintroduce the tax, increasing it by 5 cents each month starting Jan. 1.

During the special session lawmakers also will consider extending free bus service through March 30 and increasing funding for energy assistance, along with other matters.

Ritter argues that Connecticut can afford to extend the gas tax holiday.

The state comptroller in November estimated that Connecticut’s special transportation fund, which is funded in part by the motor fuels tax and can only be spent on transportation, will have a $321.2 million surplus by the end of this fiscal year.

“Yes, they can afford [gas tax holidays],” Auxier said of states with surpluses to spend. “Is that the best way they could have spent that money? That’s a more challenging question.”