Georgia Gas Tax Holiday Is Affordability Theater That Delays Harm

Georgia has rolled out a gas tax holiday at exactly the wrong moment—not just during a routine price spike, but at the beginning of a war-driven global supply shock. Governments that want to soften rising gas prices’ impact on low- and middle-income households should instead deliver targeted relief through the tax system or existing benefits mechanisms.

Based only on a fuel pump’s listed price, Georgia’s gas tax holiday may look like timely, broad-based relief. But when supply collapses, higher prices aren’t just a symptom of the problem. In a market-based economy, they’re part of the solution.

Rising prices force millions of individuals to adjust decisions in real time, nudging consumption downward—it’s inelegant but effective.

When policy intervention offsets those pricing signals, the coordination between supplier and consumer breaks down. Consumers don’t pay prices that reflect the full extent of the scarcity, so they don’t adjust their behavior as much as they otherwise might have. Demand then stays higher than the suppliers can reasonably meet in the longer term, and the imbalance is multiplied and kicked down the road.

The problem doesn’t disappear; it shows up somewhere else. In this case, that will likely be tighter fuel supplies over a longer period—or maybe even outright fuel shortages.

There is little mystery why Georgia Gov. Brian Kemp (R) has chosen this tack. Tax holidays are a popular choice among politicians because they’re simple, visible, and immediate. But that visibility actively subsidizes consumption. By lowering the effective price per gallon of gasoline, Georgia policymakers are encouraging more of it to be used right when conservation is imperative—before the actual shortage hits.

If the market is depressing demand and policy is trying to prop it back up, something will eventually give.

There is no pain-free way to navigate through a supply shock like the one we’ll likely face.

Photographer: Ronaldo Schemidt/AFP via Getty Images

This has played out in much the same way before, most notably during the energy crises of the 1970s. Under similar pressure, policymakers tried to shield US consumers from rising prices through price controls rather than allowing markets to adjust. The result wasn’t durable relief as much as temporary distortion followed by shortages, long lines, and an even longer adjustment period.

The cars are more efficient and smaller today, but the mechanics of supply and demand haven’t changed. And framing a gas tax holiday as an “affordability” measure obfuscates what happens to the consumer. A reduced state gas tax doesn’t make energy more abundant or the underlying constraint less of a problem.

It’s affordability theater—visible and potent, but misaligned with the moment. Every car at the gas pump in Georgia during the holiday will be partially paying for their fuel on credit, to be paid back with interest later via higher prices.

Broader policy directions make the misalignment difficult to ignore. As oil supply is constrained, policymakers are both encouraging consumption and obstructing substitutes for that scarce supply.

Electric vehicles, one of the most direct ways to reduce gasoline demand, are being made more expensive at the federal level through new taxes and the rollback of earlier incentives. Alternative sources of energy, from offshore wind to other forms of generation, are being actively restrained—or in some cases, paid to disappear.

Notwithstanding the folly of a gas tax holiday (and measures that discourage alternative energies), rising prices do cause real problems for those who might have already been struggling to afford gas. The difference between $3.50 and $4.00 per gallon can be the difference between getting to work and not for some commuters. So the policy objective should be to protect people from hardship while allowing the markets to do their job.

That protection should come via temporary, limited, and targeted relief. Income-based payments through existing state tax or benefits systems could take the form of immediately refundable tax credits or employer-facilitated commuter stipends for wage workers.

Relief should be decoupled from each additional gallon purchased, allowing taxpayers to decide how best to stretch their relief-dollar. Some workers may opt to use a refundable tax credit, designed to offset rising fuel costs, to purchase a transit pass—an option that wouldn’t be available to them if their relief came solely through a slightly cheaper gallon of gasoline.

Lawmakers should pair this temporary gas price relief with efforts to reduce demand, not increase it. That can mean increasing investment in public transit, encouraging carpooling and working from home, and ensuring public messaging is aligned with the policy moment.

More specifically, lawmakers need to make sure the public knows conservation isn’t just advisable—it’s absolutely necessary. Conservation campaigns, coordination with large employers for work-from-home policies, and plain-spoken communication about the potential for a fuel crunch could help ease the public in the right direction. The state needn’t micromanage behavior, but it should avoid working at cross purposes with basic economics.

Any state revenue windfalls from higher prices should be used to gird against the next shock, not paper over the current one. Infrastructure, grid stability, and energy source diversification shouldn’t be abstract goals, as they will determine the extent of the next disruption.

There is no pain-free way to navigate through a supply shock like the one we’ll likely face. Economic consequences are inevitable when the world’s oil is choked off by conflict. The choice is whether we allow the adjustment to happen now or delay it in a way that makes it hurt more later.

Prices are meant to ration scarcity. When policymakers work to suppress those prices while limiting alternatives, the result may seem like relief. But in reality, it’s market confusion layered on top of resource constraint—and a way to turn today’s bad situation into tomorrow’s full-blown crisis.

Andrew Leahey is an assistant professor of law at Drexel Kline School of Law, where he teaches classes on tax, technology, and regulation. Follow him on Mastodon at @andrew@esq.social.

Read More Technically Speaking