DFL’s gas tax holiday is a bad idea

Minnesotans are feeling the pinch from higher prices, and the price of gas is one of the main culprits. Lawmakers in St. Paul are anxious to ameliorate this — especially with elections due in November — but one idea is a notably bad one: a proposed gas tax holiday.

As my colleague Isaac Orr noted on Friday:

According to Morning Take, several DFL Representatives, including Zach Stephenson, Kaela Berg, Dave Lislegaard, Jessica Hanson, and Dan Wolgamott, will propose a gas tax holiday between Memorial Day and Labor Day using the budget surplus to pay for the cost of the $200 million tax holiday.

If we want to find a solution, we have to figure out what is causing the problem. The price of gas, like any other price, is driven by supply and demand factors.

On the demand side, there are many more new dollars chasing goods and services in the United States, bidding their prices up. The monetary base grew by 77 percent between February 2020 and January 2022, as the Federal Reserve printed money and used it to buy assets from financial institutions. The Federal Reserve could start to slow the increase in prices by cutting back its money printing.

On the supply side, there are a number of Biden administration policies that are holding back gasoline production and keeping prices elevated. Among these are new regulations from the Environmental Protection Agency governing methane emissions from oil and gas production, transmission, storage, and distribution; cancelling the Keystone XL pipeline; and suspending oil and gas leases in the Arctic National Wildlife Refuge and New Mexico. The federal government could help bring gas prices down by reversing these policies.

The state government can’t do very much about either of these. But that doesn’t make a gas tax holiday a good idea.

First, Minnesota’s gas tax is one of the few taxes in our state which isn’t that high compared to others. The Tax Foundation ranks us 26th on this measure, with a gas tax of 28.5 cents a gallon. As a result, eliminating the gas tax would only take gas prices in Minnesota back to the level of Jan. 10 this year, according to figures from the Energy Information Administration.

Second, the gas tax contributes to the upkeep of the state’s roads and bridges. It is one of the taxes most nearly approximating a fee. But, as cars have become more fuel efficient and more electric cars have hit the roads, the amount of gas tax revenue per mile driven on Minnesota’s roads has fallen. So, it is reasonable to assume that the amount of revenue the gas tax provides to fix wear and tear on roads and bridges has fallen more than the amount of actual wear of tear on those roads and bridges. Indeed, as a permanent policy fix, it would make sense to adjust the gas tax for factors such as improved gas mileage and more electric vehicles.

While Minnesotans are feeling a budget squeeze, incumbents in St. Paul are feeling an electoral squeeze. The gas tax holiday is electioneering, not serious policy.