With Vladimir Putin’s troops wreaking havoc in Ukraine, Western governments have hammered Russia with unprecedented sanctions that may have already destroyed the country’s economy for a generation. However, those moves have cost us here at home, too. Russia is the world’s second-largest oil producer, and gas prices have hit all-time highs. Millions of Americans are feeling violated every time they fill their tank, and the war shows no sign of ending soon.
Gas already accounted for 1.2 percentage points of overall inflation in the last twelve months. But the war has sent the average price of regular unleaded skyrocketing from $3.49 a month ago all the way to $4.33. (Out west, some stations are charging north of $7.00!) If you drive America’s most popular vehicle, the Ford F-150, you’ll drop $100 or more to fill your truck. That’s real money for most families.
Those prices would be comical if they didn’t hurt so much. (Open your Facebook, someone is bragging they just got approved for a loan to close on a tank.) Naturally, no one wants to cut consumption by giving up their right to drive 80 in the fast lane in their ginormous SUV. (It’s there in the Constitution if you look hard enough.) We’ll need some other way to cope. Why not suspend gas taxes?
The federal gas tax has stood at 18.3 cents per gallon since 1993, with no increase for inflation. State taxes and fees range from a low of 8.95 cents per gallon in Alaska all the way up to 66.98 cents in (you guessed it) California, with a national average of about 30 cents. Suspending those levies would cut about 50 cents off the price of a gallon. That’s plus-or-minus half of the recent increase and certainly worth considering.
Gas tax defenders agree that giving up the tax would make great politics. But they point out it would benefit those who drive the biggest and least efficient vehicles most. Rep. Peter DeFazio, who heads the House Committee on Transportation and Infrastructure, argues that it would blow a $26 billion hole in the Highway Trust Fund, which pays for much-needed road repairs. He also warns that oil companies, already making record profits, would try to pocket as much of the tax savings as they could keep for themselves.
On that note, Congressional Democrats have introduced a windfall profits tax that would nick Big Oil for 50% of anything sold over $66 a barrel. They would use that money to finance rebates averaging $240 per year for single taxpayers earning up to $75,000 and $360 for joint filers earning up to $150,000. (Awesome, let’s make Form 1040 even more complicated!) Realistically, though, any tax hike faces an uphill battle in a city full of lobbyists getting rich, making the world safe for things like lung cancer and water pollution. They’d probably be happy to kill a new windfall profits tax just for sport.
One final note: we can probably expect the IRS to announce a quick increase in the standard mileage allowance. Call us if you have questions about making the most of that deduction.
The good news is that it looks like the immediate shock may be over, and prices are stabilizing. But that’s cold comfort for the suburban mom who’s just resumed commuting back to the office post-COVID, or the contractor putting 100 miles on his van every day just to make a living. Polls show three out of five Americans are willing to pay more at the pump to support Ukraine – for now. Will they feel the same after three months, six months, or a year? Either way, you can expect to hear more about how taxes help drive prices and whether we can use them to help ease the strain.