Balancing Tax Relief Against Tax Revenue: States Consider Gas Tax Caps to Lower Fuel Costs

This article reports on a recent trend in which some states are considering lowering or capping their gasoline taxes to ease the costs for drivers. However, gasoline tax revenue is often used to fund transportation taxes, so the balance between consumer tax relief and fiscal responsibility can be difficult to achieve. The author briefly reports on the activities in 9 states that have considered bills to reduce state sales tax on gasoline, noting that Wisconsin and New York have already taken action. Wisconsin will freeze its gasoline tax index for 2007, meaning that the tax will not automatically increase to match inflation, as it has done in the past. In June 2006, New York capped its state sales tax at 8 cents per gallon (previously the state charged an average of 12 cents per gallon). The author reports some of the pros and cons of gasoline tax changes, addressing some of the benefits of higher gasoline prices such as to create incentives to find alternative fuel sources. One sidebar reprints several email responses from this magazine’s e-mail newsletter which asked readers whether lowering gas taxes is beneficial or if states should try another approach to lower gas prices.