Gov. Andy Beshear’s plan for temporary gas tax relief may not bring immediate benefit to drivers and has downsides, an expert said.
Beshear wants to cut Kentucky’s gas tax by 10 cents a gallon and freeze an automatic increase tied to the price of fuel.
Carl Davis, research director at the Institute on Taxation and Economic Policy, said that’s an inefficient way to bring relief to drivers. The tax is collected at the wholesale level, Davis said, not at the pump.
Drivers’ savings depend on wholesalers passing down the effects of the cut.
“The experience from states doing this in the past is that some of the tax cut will get to drivers,” he said. “It won't happen right away, and not all of it will reach drivers when it's a short term holiday like this.”
Gas taxes support road construction and maintenance. Davis says if those funds are reduced, they would have to be made up by taking from another source. Road repairs might be delayed.
Kentucky’s gas tax is currently 26.4 cents a gallon and is scheduled to rise to 27 cents on July 1.
Beshear signed an executive order to freeze it at the lower amount, subject to the approval of Attorney General Russell Coleman. The reduction would take place on May 11 and last 30 days.
Kentucky’s gas price averaged $4.39 a gallon on Wednesday, according to AAA, 40 cents more than a month ago.
A 10-cent break could be eaten up quickly by rising prices, Davis noted.
“The reality is that states have very little control over the price of gas, especially in the short term,” he said. “And so just because ideas like this sound good on a surface level, that doesn't mean they're actually effective.”
According to the Institute on Taxation and Economic Policy, Kentucky and West Virginia tie their gas taxes to the price of fuel.
Other surrounding states, including Illinois, Indiana and Virginia, index their gas taxes to inflation or infrastructure costs. Inflation has raised the cost of road-building materials such as steel, concrete and asphalt.
Meanwhile, Congress hasn’t raised the federal gas tax since 1993. It’s been stuck at 18.4 cents a gallon for three decades, regardless of inflation or the price of fuel.
As the federal tax’s buying power has eroded, states, including Kentucky, have attempted to make up the difference.
The summer driving season, which traditionally starts on Memorial Day, is approaching, and usually, that means higher gas prices under ordinary conditions.
“We're not flush with infrastructure funds in this country,” Davis said. “Giving away a lot of gas tax revenue right now for a cut that drivers are barely going to feel, probably aren't going to notice, really feels like misplaced priorities.”
