DETROIT (WXYZ) — Our leaders want to lower gas prices, but could their efforts have unintended consequences?
At the national level, U.S. Congress is considering waiving the 18 cents federal gas tax.
The Michigan House passed a bill that would waive the state gas tax for six months. The gas tax holiday still needs approval from the Senate and the Governor to become law. If it does pass, gas stations in Michigan would no longer have to pay just over 27 cents per gallon to the state in motor fuel tax used to fund road repairs.
Everyone loves holidays. The idea of a gas tax holiday sounds great. But, the question is, who actually would get the holiday?
“We would be able to share those savings with our customer at some point,” said Mark Griffin, President of the Michigan Petroleum Association, a group that lobbies for the interests of gas companies and gas stations.
WXYZ asked him just how much of the tax savings would be passed on to consumers.
“Everything being equal, it would lower the price of gas 27 cents a gallon for the consumer,” said Griffin.
“Of course, saying all things being equal, is something economists say all the time,” joked Professor Kevin Cotter, Wayne State University Economics Department Chair, when read that quote.
Cotter warns that while the idea of a gas holiday sounds great for stations and drivers, in the situation we are in now, everything would not remain equal. Right now competition between gas stations is a weaker market force than a global shortage of oil.
“A cut in the pump price, that is going to result in an increase in gas purchases that the market can’t accommodate,” said Cotter.
He says we have to remember what is causing this. There is a global shortage of oil due to the War in Ukraine. Russia is facing sanctions, plus tankers don’t want to carry Russian oil because it means traveling through a war zone.
So if the price goes down due to a tax holiday and as a result, people start buying more gas, guess what will happen? The price refineries and Big Oil companies charge will likely increase, absorbing any savings from the tax holiday.
“You either have a shortage or the price goes up,” said Cotter. “The alternative would be, if you look back to the 1970s, when we had price controls after the oil embargo there were long gas lines. Because people wanted to buy gas, but gas wasn’t available.”
He says that is why we don’t have price controls.
“The fact is we are going to continue to see the price go up and I don’t think a tax holiday is going to make much of a difference,” said Cotter.
The bottom line is economists say if a gas tax holiday goes into effect, consumers might see the vast majority of that tax cut lead to profits for Big Oil as companies raise prices to keep demand where it meets supply.