Georgia’s governor declares ‘state of emergency’ over inflation and pauses gas tax. Is that a wise decision?

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‘While high prices continue to hit family budgets, hardworking Georgians deserve real relief and that’s why I signed an executive order today to deliver it directly to them at the pump.’

— Georgia Governor Brian Kemp

That’s Gov. Brian Kemp declaring a “state of emergency” Tuesday for the Peach State and announcing a one-month halt on Georgia’s 31-cent per gallon gas tax.

As gas prices rise, Georgia’s governor has returned to an old plan — a pause on the state’s gas tax. Kemp said last year’s pause saved Georgia drivers a collective $1.7 billion.

Kemp, a Republican, took a swipe at the White House, saying “all Bidenomics has done is take more money out of the pockets of the middle class.”

August experienced the biggest monthly inflation rate increase in 14 months, largely driven by higher oil prices. The cost of gasoline grew nearly 11% month over month, but was down roughly 3% from a year ago, the Bureau of Labor Statistics said Wednesday.

Gas prices in Georgia are averaging $3.56 on Wednesday, still lower than the national average of $3.84, according to AAA. Both the national and Georgia average gas prices are up from a year ago. In June 2022, U.S. gas prices hit an all-time high of $5.01 per gallon.

Are gas-tax holidays a good idea?

Georgia’s gas-tax pause starts Wednesday. But will it increase momentum for a new round of gas tax holidays elsewhere?

“Other states are not suspending their gas tax at this time,” said Jared Walczak, vice president of state projects at the Tax Foundation, a right-leaning think tank.

Last year, for example, New York state decided against a gas-tax pause, despite 73% of the public saying they would support such a measure.

Some critics say gas-price pauses are more likely to impact wealthier households — research suggests they can afford to own a car and use a lot more gas — and will not go far enough in addressing the overall spike in energy prices. Others say gas-price pauses are also a Catch 22: They argue that lower gas prices will lead to higher demand, which in turn will cause prices to rise again.

“Georgia’s return to the well here is not necessarily indicative of other states following suit,” Walczak added.

Gas-tax revenue goes to infrastructure projects, and Walczak is wary of pauses – so are a number of other experts.

There are more direct ways lawmakers can offer tax relief and savings such as lower state income rates and lower sales tax rates, Walczak said. It’s a “mixed bag” on how much drivers end up saving at the pump, he added.

“We have to pay for roads somehow,” he said. 

AAA spokesman Devin Gladden told MarketWatch that the gas-tax halt will likely make gas prices more palatable for Georgians, but said the actual impact of such gas-price pauses will be “quite limited” in terms of overall inflation.

“To single out that this measure to fight inflation doesn’t take into account we are in hurricane season.” One bad storm snagging Gulf Coast oil production could increase prices, and wash away any savings for Georgia drivers, he said.

New concerns on tighter oil supply

Kemp suspended Georgia’s gas tax for most of last year as pump prices spiked while energy markets grappled with Russia’s invasion of Ukraine and post-pandemic domestic consumer demand. Other states temporarily also halted their gas tax, including Florida, Connecticut and Maryland.

Fast forward to September 2023: New concerns on tighter oil supply are pushing gas prices higher again. Saudi Arabia and Russia recently announced supply cuts through the end of the year.

Crude-oil costs make up half the cost for a gallon of gas, according to the U.S. Energy Information Administration. Federal and state gas taxes account for 14% of the cost, the agency said.

During the start of Georgia’s gas tax holiday last year, 58% to 65% of the tax savings were passed along to drivers, Penn Wharton Budget Model researchers wrote in June 2022.

AAA’s Gladden, meanwhile, remains undecided about Kemp’s gas-price pause. “It begs the question,” he said. “Will it help to solve the problem, or create more because of the lost tax revenue?”

Related: American Airlines cuts profit outlook amid higher fuel prices and a $230 million labor expense


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