Most say suspension of gas tax won’t help

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By Ed Tibbetts | Wednesday, May 7, 2008 8:05 PM CDT | () comments

Suspending the federal gasoline tax over the summer would cost Iowa roads and transit systems nearly $100 million if the money isn’t replaced, state officials say.

Increasing talk of a gas tax holiday is making transportation officials across the country nervous, as the price of fuel continues to skyrocket and politicians eager to please angry consumers are looking for answers.

The most notable of the proposals is suspending the 18.4-cent-a-gallon federal gas tax for the summer months. Presidential hopefuls John McCain and Hillary Clinton have both proposed it.

Clinton and McCain say they would finance their plan so infrastructure projects don’t suffer, but in a state that already is facing a $200 million annual bill to meet just critical infrastructure needs, officials say an unfunded gas tax holiday is a threat.

“We’re obviously very concerned if this isn’t backfilled,” said Dena Gray-Fisher, a spokeswoman for the Iowa Department of Transportation.

Federal gas tax revenues to Iowa this summer will be $90 million for highways and $9 million for transit systems. The U.S. funding makes up about a third of the state DOT’s revenues for highway maintenance.

Thus far, most economists have looked down their nose at a gas tax holiday, arguing it wouldn’t provide much relief. An analyst at the U.S. Department of Energy says maximum household savings would be $70 if all the savings are passed on to consumers.

That’s a fraction of the nearly $1,200 a household is expected to spend on gas between June and August, $243 more than the same period last year.

Still, backers say that it would provide much-needed relief.

“Suspending the gas tax for the summer months would mean real economic relief for all Americans and particularly for lower- and middle-income families,” Steve Rathje, an Iowa Republican who is running for the U.S. Senate, said Wednesday. He said he would pay for it by cutting earmarks, congressionally mandated special projects.

There’s no doubt consumers are angry about gas prices.

“It’s ridiculous,” Ron Hill, of Bettendorf, said while filling up at a Bettendorf gas station Tuesday.

Still, there’s plenty of skepticism a gas tax holiday would make a difference. A half dozen people quizzed at random at Gary’s Quik Serv in Bettendorf said they didn’t think an 18-cent-a-gallon price break is enough.

“That’s not helping. They’d need to lower it more than 18 cents,” Seneca Bulington of Bettendorf said.

She said she and her husband spend $200 to $300 a month on gas.

Several drivers expressed skepticism they would see any savings at all.

“It’d be a good idea if it was a true break,” Mel Knight of Muscatine, Iowa, said.

The last time there was a suspension of a gas tax in this area was in 2000, when the Illinois Legislature, facing $2 a gallon gas, suspended its 5 percent sales tax through the end of the year. Barack Obama, who has called the McCain/Clinton plan a “gimmick,” voted for the suspension.

A study done in 2006 for the National Bureau of Economic Research said prices in the state dipped 3 percent, or about 60 percent of the tax cut. After it was reinstated, prices rose 4 percent, or about 80 percent.

The study said Illinois lost $157 million in tax revenue.

Iowa hasn’t talked about a cut in the gasoline tax in years. In fact, any discussion in Des Moines about a gas tax has mostly centered on whether to raise it, given the DOT’s estimate that $200 million a year is needed just to fund the state’s critical road needs.

A package of fee increases approved in the last session put the state on the road to raising $160 million of that by 2012.

Iowa Rep. Jamie Van Fossen, R-Davenport, said the political reality is conditions aren’t ripe for a tax cut on the state’s 21-cent-a-gallon tax, even with prices rising.

“I think it would be immensely popular if it lowered the price,” Van Fossen said, although he, too, doubts all the benefits would be passed on to consumers.

Ed Tibbetts can be contacted at (563) 383-2327 or etibbetts@qctimes.com.