While gas prices have dropped somewhat over the past week, at a national average of $4.15 per gallon, according to AAA, they remain more than $1.28 higher than a year ago.
Amid concerns that the higher prices will hurt consumers’ wallets, some state and federal lawmakers are looking at ways to ease that pain at the pump. On March 17, US Reps. Mike Thompson, California Democrat; John Larson, Connecticut Democrat; and Lauren Underwood, Illinois Democrat, introduced the Gas Rebate Act of 2022, which would send monthly payments of $100 to Americans where the average gas price is higher than $4 per gallon.
The program would begin to phase out for individuals earning more than $75,000 and couples earning more than $150,000, and phase out entirely for individuals with an income of more than $80,000 and couples earning more than $160,000 per year.
In a statement announcing the proposed legislation, Thompson called it a “commonsense policy solution to the financial burden… constituents are feeling.”
But not everyone agrees that tax rebates limit the impact of high gas prices on the economy. Alex Muresianu, a federal policy analyst at the Tax Foundation, says that tax rebates may not solve the problem of post-pandemic supply constraints and oil markets roiled by Russia’s invasion of Ukraine.
Supply and Demand for Gas Products
“The last thing you want to do is stimulate demand for a product where we already have supply problems,” Muresianu says. “By issuing rebates or cutting the gas tax, you’re reducing the relative price of gas, which could induce people to drive more.”
Muresianu also worries about the broader economic impact of such a proposal.
“We have this very high inflation right now, and part of it is driven by the major stimulus programs last year,” he says. “So, the idea of giving out even more stimulus while the economy is still running hot may not make sense.”
Still, several states, including California, New Jersey, and Delaware, are implementing or considering gas tax rebates and about a dozen other states are looking at suspending gasoline taxes while prices remain elevated.
States Offering Gas Rebates and Gas Tax Holidays
Individual states are taking different approaches to dealing with gas prices partly because prices can vary widely from state to state. At $5.81 per gallon, gas prices in California are a full $2 per gallon higher than prices in six other states, according to AAA.
State-by-state price variations reflect several factors, including geographic proximity to refineries, local gas taxes and regulations, and overall demand, says Patrick De Haan, head of petroleum analysis for GasBuddy. In Kansas and Oklahoma, for example, gas prices remain among the lowest in the country because they have relatively low taxes and smoothly running nearby refineries.
“California has been the opposite,” De Haan says. “They have been having issues with their refineries over the last few weeks, so there is not enough refinery capacity in an already tight state. Plus, they have special mandates for the gasoline blend from their Air Resources Board. All of that uniqueness pushes prices higher in California than anywhere else.”
So far, these are the states that have implemented a gas tax holiday:
- Connecticut: April 1 to June 30
- Georgia: March 18 to May 31
- Maryland: March 18 to April 18
And these states have proposed a gas rebate:
- California: $400 debit card rebates
- Delaware: $300 check
- Maine: $850 check
- Massachusetts: $500 payments to low-income workers
- New Jersey: up to $700 for some homeowners
Regardless of which state you live in, however, De Haan says consumers should get used to seeing price volatility at the pump.
“One day, there are headlines from China that destroy oil demand, and the next day there is an invasion by Russia that might create less liquidity in the market,” he says. “Situations are changing very quickly, and politicians are getting in the way of supply and demand.”