Most economists believe that raising taxes on gasoline reduces consumption. Some favor raising rates higher as a way to drop prices by curtailing demand. That might work if no one in China ever used diesel or gasoline. It would also make sense if people did not have to drive to work or take their kids to school.
The majority of states have a gas tax of about $.20 and with the Federal tax that number moves up to around $.50. States like the tax because it is a way to pay for roads and other infrastructure improvements.
During a period of recession and with oil moving above $102, there is a real question of whether the needs of the state to build roads and for the Federal government to bring money to the Treasury is trumped by the need to give consumers some relief on the price of petrol which is above $3 and rising.
The debate is complicated. If consumers feel pinched or loss their jobs, states will lose a critical part of their income and sales tax bases. The states can help residents by lowering a key cost of living–fuel. Indirectly such a move would help the auto industry, both national and local, and retailers.
If the states are not willing to lose their cash-flow from gas purchases, the Treasury can afford it, even if it adds another stress on the finances of the Federal government. Giving a consumer back some of what he pays for each gallon of fuel eases a burden which most people cannot bear with ease.
It may not bust up the recession, but it could cushion the fall.
Douglas A. McIntyre
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