Suspending Nevada’s gas tax for a year might save you an estimated nickel-ninety-eight, tops

Almost anything would be a better way to spend $250 million

January 26, 2023 6:17 am

Maybe $5.71 a month, if you round up. (Photo: Ronda Churchill)

It was a gimmick when Nevada Democratic Sens. Catherine Cortez Masto and Jacky Rosen signed on to a federal gas tax holiday plan a year ago, it was a gimmick when Joe Biden floated the idea last summer, and the gas tax holiday remains a gimmick now that Joe Lombardo has proposed one.

But gas tax holidays poll very, very well. So Nevada Democratic legislative leaders have mostly held their fire on the Lombardo administration’s plan to eliminate the state gas tax for a year at an estimated cost to the state of $250 million, a luxury the Lombardo administration can afford thanks to Joe Biden and the Democrats in Congress.

The governor’s office contends the tax holiday would save customers “hundreds” of dollars.

That’s optimistic.

Last year the Penn-Wharton Budget Model project at the University of Pennsylvania tried to measure the impact of recent gas tax holidays in three states, Maryland, Georgia and Connecticut. 

On one end of the spectrum, the study’s models estimated as much as 87% of the benefit of suspending the tax would be passed on to consumers.

Nevada’s state gas tax is 24 cents a gallon. If 87% of the tax was eliminated from the price of gas, a gallon would cost about 21 cents less than otherwise.

But under another of the study’s models, only 57% of the tax cut would be passed on to consumers. Apply that to Nevada’s gas tax, and the savings are closer to 14 cents a gallon.

The suspensions in Maryland, Georgia and Connecticut each lasted a few weeks, far less than the full year being proposed in Nevada. But confirmable savings to consumers in those states weren’t sustained even during those brief gas tax holidays. The portion of the tax cut benefit that doesn’t go to consumers goes to suppliers, by the way, which is also one of many factors that complicate assessing the degree to which gas tax holidays actually lower the price of gas.

The American Petroleum Institute estimates that on average a vehicle in the U.S. uses 489 gallons of gas a year.

Combine that average usage with the rosiest Penn-Wharton scenario – the one where 87% of the benefit of eliminating a gas tax would go to consumers. In defiance of the research, assume the benefit is sustained over the entire year Nevada’s tax cut would be in effect. The average driver would save a total of $102.69.

Under Penn-Wharton’s less optimistic scenario, that household’s savings would be less than $68.46. If you round up, that’s $5.71 a month.

The governor’s office promises the savings from eliminating the gas tax will “exclusively benefit taxpayers.”

The proposed federal legislation co-sponsored by Cortez Masto and Rosen last year made a similar declaration – that “all applicable authorities” would be used “to ensure that the tax reduction is received by consumers.”

Such a provision “may be difficult to enforce,” observed the Congressional Research Service in an analysis of the federal bill’s potential impact. “Enforcement may require estimating what the price of gasoline in each locality would have been in the absence” of the federal gas tax, and “over an extended period of time, other factors, such as changes in the price of crude oil and other inputs, would be likely to affect the hypothetical price of gasoline without” the federal tax.

The difficultly of accurately measuring the impact of a gas tax holiday on the price of gas is also inherent in the Penn-Wharton study’s multiple models.

In other words, if it prepared a gas tax suspension that verifiably benefited consumers “exclusively,” the Lombardo administration might be a contender for the Nobel Prize in economics.

But let’s say, for kicks, that Nevada pulled it off, did what nobody anywhere else has ever done, and crafted a gas tax holiday that indisputably maxed out at a 100%, penny-for-penny impact on gas prices – that is, the price of every gallon of gas would be 24 cents cheaper for the entire year the state tax holiday was in effect. That would still only translate to total average savings per vehicle of $117.36, or less than $10 a month.

Some gasoline customers would save “hundreds” of dollars, or even thousands: Businesses that put a lot of gas in a lot of cars, trucks and SUVs.

On the other side of the coin, people who ride the bus will save nothing at all. Announcing his gas tax at the top of his state of the state speech this week, Lombardo said “we will not stop searching for additional ways to return money to the taxpayers.” When it comes to some taxpayers, it appears that search has yet to begin.

However anticlimactic, 117 bucks is still 117 bucks. Or if it’s only the $68 under the more conservative estimate, that’s better than not saving $68 – even if the savings are imperceptibly dribbled out in a few bits over the course of a year. (Note: Savings will be higher for households with multiple vehicles, especially if those vehicles aren’t fuel-efficient.)

But thanks to Nevada’s historic-folkloric neglect of urgent public priorities, programs and services, there are innumerable ways to spend $250 million that would be far more consequential, beneficial – and equitable – for Nevadans than a gas tax holiday, including but certainly not limited to just stuffing even more money in the Rainy Day Account for when Kevin McCarthy incinerates the global economy as per Marjorie Taylor Greene’s request.

Economically, the gas tax holiday is daft. But publicly and politically, it’s popular. It’s tempting to call it cheap trick politics. Except even adjusted for inflation, $250 million ain’t cheap.

A version of this column was originally published in the Daily Current newsletter, which you can subscribe to here.

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