Inflation hit 7.9 percent in February, the highest point in 40 years. While many factors contributed to this spike, one in particular has drawn much public attention: the jump in the price of gasoline.
One year ago, a gallon of regular cost just $2.72 on average nationwide. Today, that national average is above $4.32 a gallon. Given how Russia’s war on Ukraine is impacting oil prices, chances are the cost of gas could hit more than $5 a gallon soon.
With an election just around the corner, many politicians feel compelled to reduce prices consumers face at the pump. That’s not easy, since the escalation in the cost of gasoline is driven by circumstances government really doesn’t control.
This has led many elected officials to suggest the one thing they do control — sales taxes on gasoline — be suspended or cut as a way to help families make ends meet. Indeed, Georgia and Maryland have already temporarily suspended their respective state sales taxes on gasoline, and others are expected to follow.
In Illinois, some Republican legislators have proposed capping the state’s sales tax on gas at 18 cents per gallon — which would be less than what consumers are currently paying due to the spike in gas prices. Proponents of this initiative estimate that it could save consumers anywhere from $400 million to $900 million, depending on how high gas prices ultimately go. All of which certainly sounds good. The problem is, as well-intentioned as these various gas-tax holidays may be, they do not make for a very effective nor efficient way to provide tax relief.
In fact many experts, like Alice Abreu, director of the Center for Tax Law & Public Policy at Temple University, and Maya MacGuineas, president of the bipartisan Committee for a Responsible Federal Budget, have noted that the real beneficiaries of gas-tax holidays tend to be gas stations and oil producers. That’s because they do not pass all, or even most, of the savings these cuts generate down to consumers. Instead, they bump up the pre-tax price of a gallon of gas to account for all or a significant portion of the tax cut and pocket the difference.
It simply does not make a lot of sense to rely on a private business, which exists to make a profit, to be the conduit for tax relief intended to benefit others.
Moreover, any tax relief that does ultimately filter down to consumers isn’t very targeted to help those that need it most. The big winners will be folks who drive giant SUVs or other gas hogs. Low-income folks, who frequently rely on public transportation to commute to work, would not benefit much at all. Nor would those who bought fuel-efficient vehicles. Essentially, gas-tax holidays subsidize the biggest auto polluters.
If the desire is to provide tax relief that actually helps the low-income families hurt most by the significant jump in the cost of living we’re experiencing, then much better options are available. For instance, there’s HB 4920, an initiative that would both enhance the state’s existing Earned Income Tax Credit while also creating a child tax credit for the first time in Illinois.
First established in 1975 under Republican President Gerald Ford, the “refundable” tax credit is targeted to low-income workers. When a tax credit is “refundable,” the taxpayer who qualifies for it gets the full dollar value, even if that exceeds the income-tax liability they owe. Illinois’ version, which is also refundable, provides a benefit based on the dollar value of the federal credit an individual claims. HB 4920 would increase the dollar value of the Illinois tax credit and expand who is eligible to get it.
Meanwhile, the newly proposed Illinois child tax credit would provide an annual benefit of at least $600 to certain unpaid caregivers of children. All told, HB 4920 would provide an annual benefit worth $415 million directly to over 4.8 million low-income Illinoisans, of whom 1.9 million are children. That’s effective tax relief.
Ralph Martire is executive director of the Center for Tax and Budget Accountability, a bipartisan fiscal-policy think tank, and the Arthur Rubloff Professor of Public Policy at Roosevelt University in Chicago. He can be reached at [email protected].