Florida Governor Ron DeSantis wants to use $1 billion in American Rescue Plan (ARP) funds to suspend Florida’s gas tax for five months.
Suspending the gas tax is a bad idea, full stop. Funding a gas tax suspension with federal funds intended to address a public health crisis, in the middle of the omicron wave, in one of the pandemic’s hardest-hit states, is … well, rather Florida.
Suspending the gas tax is a bad idea
DeSantis pitched his proposal as a response to rising gas prices, but his policy tool is neither part of the problem nor the solution. (Related, prices at the pump recently began to fall.)
The price you pay for gas is combination of the cost of crude oil, refining costs and profits, distribution and marketing costs and profits, and taxes. By far, the largest factor is the cost of crude oil, which is determined by a host of global factors well out of the reach of state policymakers.
In fact, the US Energy Information Administration reported that combined federal and state taxes accounted for only 16 percent of the price of gas on average between 2010 and 2020. That share was up to 22 percent in 2020 but that was the result of lower gas prices that year. This inverse relationship means that when gas prices are high, taxes are an even smaller factor in what the consumer pays.
And Florida drivers might not even primarily benefit from suspending the tax. According to AAA, the average per gallon price of gas in Florida is $3.203—but there is a lot of variation. The average price is $3.030 in Baker County, $3.183 in Taylor County, and $3.418 in Palm Beach County. That’s because the price at the pump is also affected by location—that’s why the station off the highway charges 10 cents more per gallon than the one a little further down the road.
Point is, suspending the state’s 27-cent gas tax does not mean drivers automatically pay 27 cents less per gallon. There is nothing preventing station owners from pocketing at least some of this supposed consumer tax relief.
Further, a benefit of the gas tax is that non-residents pay it. This is true across states but particularly important in a tourism hub like Florida. If there is a consumer benefit from suspending the gas tax the state is definitely giving a chunk of it to out-of-state drivers.
If DeSantis wants to deliver temporary tax relief to Florida residents, he could simply send them rebate checks as many states have done during the pandemic. Or he could be innovative and ask legislators to enact a state earned income tax credit that would target benefits at low-income workers. (Washington state proved states without an income tax can do this.)
Using ARP dollars for a gas tax suspension is a worse idea
Congress instructed states to spend ARP funds to help with the public health emergency, replace lost tax revenue, offset the pandemic’s negative economic effects, or invest in infrastructure. I can only assume DeSantis is going with negative economic effects.
Congress additionally said states could not use ARP dollars for tax cuts, but the guardrails on that are broad enough that Florida could meet the letter of the law if other state tax collections are strong. Treasury’s rule is also backwards looking and based on Census data that won’t be released for a few years. Thus, the Treasury Department might someday penalize Florida for this misuse of ARP funds but it won’t proactively stop this.
Regardless, Congress encouraged states to focus ARP benefits on households “most disproportionately impacted by the pandemic” and promote “a strong, inclusive, and equitable recovery.” As such, states across the country are using ARP dollars to support housing programs, provide food assistance, expand broadband, and ramp up economic development. No one else is using funds for a suspended gas tax.
Not to mention the public health crisis and need for ARP funds is far from over. Florida’s COVID case counts are at an all-time high and hospitalizations are rising. ARP funds could certainly go to vaccine and testing efforts or businesses seeking another round of government support.
Florida men politics
Of course, this proposal has nothing to do with tax policy or recovery plans. It is pure politics. DeSantis knows that voters hate high gas prices and pretending to lower them is an electoral winner.
In fact, one of his possible opponents in the November 2022 election, former Gov. Charlie Crist, has a similar proposal. The Democrat’s only change is he’d pay for it with … the state’s rainy day fund. So, when talking about the latest Sunshine State debacle, please use “Florida men” instead of “Florida man.”