Gas Taxes

Politicians Propose Giving People Cash To Compensate for High Gas Prices, Inflation

From New Jersey to California, state lawmakers are mulling one-off rebates and tax credits to ease the pain of rising prices.


High gas prices and large state budget surpluses are giving lawmakers from both parties an idea: send people cash to compensate for rising prices at the pump.

On Thursday, California lawmakers floated a proposal to spend some of the state's $45 billion budget surplus on sending all California taxpayers a $400 check. That, according to proponent Assemblymember Cottie Petrie-Norris (D–Irvine), is the amount your average Californian pays in state gas taxes every year.

Earlier this week, New Jersey Assemblyman Edward Durr (R–Gloucester) introduced his "Gas Price and Inflation Tax Credit Act" that would give a $500 refund to families and $250 to individuals.

"Gas prices and inflation are both soaring, which is making it harder for New Jerseyans to fill their tanks and feed their families," Durr said in a statement to New Jersey has a $10.1 billion surplus. In Minnesota, Gov. Tim Walz (D) has also suggested spending some of his state's $10.5 billion budget surplus on $1,000 rebates to families and $500 to individuals.

Republicans in Minnesota and California have criticized the rebate proposals in their respective states as poorly targeted and have instead proposed gas tax holidays as a way of more directly helping drivers.

"People who are driving the most because let's say they live in a rural area, or maybe they have to commute a long distance to work, or maybe they have several kids they have to drive to school, the benefit will be commensurate with the pain that they're feeling right now," California Assemblyman Kevin Kiley (R–Rocklin), who's own gas tax holiday proposal was shot down in the assembly on Monday, told the Los Angeles Times.

A handful of states, most recently Georgia, have already gone ahead and waived state gas taxes. Other gas tax holiday bills are working their way through state legislatures. Democrats in Congress have proposed a suspension of the federal gas tax too.

If the goal is to provide people relief from higher gas prices in particular, then suspending the gas tax is indeed the most direct and proportional means of doing that. But that doesn't make it a wise idea.

Gas taxes are paid by road users for the purposes of road maintenance. Gas taxes pay for most highway spending at the federal level (and in some states), and the majority of gas tax revenue is spent on roads.

"The gas tax makes particular sense as the source of highway funding because it conforms to the user-pays principle," wrote the Tax Foundation's Alex Muresianu in February. "People who drive are also broadly the people who benefit most from roads, making the tax an efficient funding source."

The fact that gas taxes don't cover all road spending, though, suggests that they (or similar user fees) should actually be raised, not waived. Suspending them means states have to forgo planned road work or replace the missing funds with general tax revenue, which means some taxpayers will be funding a service they don't use.

And while rebates and tax credits are not a great means of responding to rising gas prices (or inflation generally), they're not a bad way of spending massive budget surpluses. Across the country, state governments find themselves flush with cash—thanks to gobs of unspent federal relief money and higher than expected pandemic-era tax revenues.

Congress' provision of that federal aid was fiscally irresponsible given our large and growing national debt and seemingly unnecessary given how much of it is just sitting in state government coffers. But there's no unringing that bell. Giving that excess money directly to taxpayers in the form of cash means individuals, not state legislators, will ultimately decide how it's spent. It is essentially providing people a refund on taxes they've already paid; it is just a return of stolen goods.

This is complicated by the fact that in both California and New Jersey, individuals could end up receiving more in rebates than they paid in taxes. These proposals return some people's income. They also redistribute it.

From a libertarian perspective, it's still better to have individuals spend this money than see it blown on pet programs and political patronage. That'd be true even if gas prices are falling.