De Haan: Gas tax holidays are providing relief at the pump

(The Center Square) – Gas tax holidays are benefiting the residents of two states, but the long-term outlook on gas prices is they won’t be coming down anytime soon, one economist said.

Patrick De Haan, head of Petroleum Analysis for GasBuddy, said in an exclusive interview with The Center Square that Maryland and Georgia residents are seeing lower prices at the pump since each state enacted gas tax holidays over the past two weeks. Connecticut’s gas tax holiday opens Friday.

De Haan wrote in a Monday post on GasBuddy that the national average for a gallon of gas had not changed from the prior week, with the national average sitting at $4.23 per gallon, which saw a very small decrease across the country.

Maryland was the first state to enact a gas tax holiday on March 18, which suspends the state’s 36.1 cents per gallon, and 36.85 cents on diesel fuel, for 30 days. In Georgia, the state moved to suspend the state’s 29 cents tax on gasoline, and 32 cents on diesel, through May 31.

“Georgia and Maryland have had a noticeable decline in average prices,” De Haan said. “That can be directly attributed to the gas tax holiday. Sometimes decrease in prices work their way in in a convoluted way. Oil prices change every day. So, you are not waking up tomorrow and gas prices are cut by the price of the tax.

“The gas tax holidays can be phased in. In Georgia, some retailers had just bought fuel that had been taxed and they didn’t want to lower their price by 30 cents a gallon. That fuel will last 5 to 7 days.”

In Connecticut, the suspension of the 25 cents per gallon tax on gasoline goes into effect on Friday and runs through June 30. In addition, the state’s attorney general set up a website for residents to report gas stations which have not lowered prices by the amount of the tax.

“It appears at first glance stations have passed the full decrease onto consumers,” De Haan said of gas prices in Georgia and Maryland. “It did take time. A lot of that looks like right around the time they cut the gas tax, the average was $4.17 per gallon, and it dipped to $3.95, which is a decline of 22 cents.

“In Maryland, I would say the decline was because Maryland basically applied the tax to the retail level. Most of the time gas is bought by the station at wholesale prices and they recoup that at the pump. Maryland made [the gas tax suspension] retroactive. So, gasoline bought was going to be taxed at the gas pump. It is a very challenging way for stations to keep track of it.”

According to De Haan’s report, the national average for gas is up 62.4 cents per gallon over the past month, the same time frame since Russia invaded Ukraine on Feb. 24, and gas is $1.38 per gallon higher than it was one year ago.

“The decline we’ve seen in average gas prices has been slowing down, as oil prices have held above $100 after declining under that level as recently as a few weeks ago,” De Haan said in the report, referring to the price per barrel. “While the national average should start to stabilize for the time being, there’s no telling what’s around the corner, at least for now, as the volatility in oil prices persists.”

While the federal gas tax remains in place at 18.4 cents per gallon, gas prices around the country have run anywhere from $3.99 to $4.29 and higher in some states, according to the report. The lowest gas prices are being recorded in Maryland and Georgia, due to gas tax holidays, and Oklahoma ($3.79), Kansas ($3.79), and Arkansas ($3.80). The highest prices are California ($5.91), Nevada ($5.22), and Hawaii ($5.11).

De Haan said the states could choose to extend the gas tax holidays, as they are going to be popular with the people.

“I’m worried this could elevate prices down the road,” De Haan said. “But it is absolutely going to lead to more time for gasoline inventories to recover. To what degree, we can’t say. It is not good that it will lead to elevated prices.”

Gas prices have spiked twice in the last 15 years, once in 2007, and then again in 2020, during the COVID-19 pandemic. Each time gas prices fell afterward, but for different reasons, De Haan said.

“That was induced by a recession,” De Haan said of the 2007 drop in prices. “We’ve only seen massive plunges in prices back in 2007 due to a recession. In 2020, it was COVID-19. Some economists are saying we could see a recession in the next year.

“This is new territory. We are coming through a global pandemic. Global oil inventories are alarmingly low. Even if there is a recession, it doesn’t mean there will be lower prices.”

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