Which States Have Suspended Gas Tax and Will Others Follow Suit?

Average gasoline prices in the U.S. reached their higher absolute level earlier in March. While prices have since come off their highs, they're still above $4 a gallon. Some of the states have come forward to suspend gas tax.

States suspending gas tax would help lower gas prices for consumers. Which U.S. states have suspended gas tax and will other states follow suit and provide relief to the average American?

First, we should understand how gas prices are determined in the U.S. The key driver of gas prices is the price movement in crude oil prices. Crude oil prices have been a casualty of the Russia-Ukraine war and prices hit their highest level since 2008 earlier in March. While crude oil prices have since come down, they're still above $100 per barrel.

The second component of gas prices is the refiner margin. Then there's the margin for the gas retailers. Finally, we have taxes, which include both federal and state taxes. The federal taxes on gasoline are 18.40 cents per gallon. States have different tax slabs for gas but the average at the beginning of 2022 was 31.02 cents per gallon.

Alaska has the lowest gas tax in the U.S. while California’s gas tax is the highest in the country.

So far, only Georgia and Maryland have suspended gas tax. While Georgia’s suspension would remain in place until May 31, Maryland’s suspension is for 30 days and will end on April 16. Florida has also passed a bill to suspend the gas tax in the state. However, the suspension would come into effect in October.

Since the mid-term elections are in 2022, lawmakers might want to provide some sort of relief to consumers, especially with U.S. inflation running at a multi-decade high. California is contemplating a $400 gas tax rebate. Michigan’s Governor Gretchen Whitmer has also talked about suspending the gas tax.

Several lawmakers are calling upon the Biden administration to suspend the federal gas tax. However, the administration hasn’t been too keen on the move considering the already strained finances and the elevated expenditure for the year. Bernie Sanders has even called for a windfall tax on energy companies.

Even if states temporarily suspend gas tax, the volatility in crude oil prices will continue to lead to volatility in gas prices. Several countries, including the U.S., U.K., and Canada, have stopped buying oil from Russia.

However, buyers elsewhere have been lured by the steep discount offered by Russian oil companies. For example, India is looking to buy more oil from Russia since it has been offered at a massive discount over spot prices.

Most brokerages have a bullish short-term view of oil and expect crude oil to trade at higher levels. Warren Buffett, who has otherwise been struggling to find appealing investment avenues for many quarters now, has also poured billions into Occidental Petroleum.

Crude oil prices might not come down significantly, at least in the near term, which would mean elevated gas prices. With the mid-term elections only a few months away, consumers would fancy their chances of gas tax cuts in more states.