Mighty Fuel Tax Holiday

Consumers worldwide have been feeling the heat of rising prices: rising food prices, escalating interest rates, mounting energy costs, and, most notably, sky-rocketing fuel prices. Although it remains a chicken-and-egg question, it is undeniable that when the price of fuel rises, prices of most commodities quickly follow. We are all too familiar with the food riots that have become commonplace, from Cameroon to Haiti, where high food prices partly cost the Prime Minister his job.

Against the background of an economic slowdown (some would call recession), inflation, and a weakening dollar, many Americans have been forced to join the belt-tightening taking place in many other countries. A majority of the electorate this year has highlighted the economy as their top concern. This has naturally presented an opportunity for potential presidential candidates to showcase their creative problem solving skills.

Two of the leading contenders have proposed a national tax holiday that would suspend collecting the federal gas and diesel tax for the summer. The other leading candidate has opposed the move as an ineffective, short-term move that would save the taxpayer "half a tank of fuel over the entire course of the summer."

Doing Business measures the impact of taxes paid by a business on the commercial profits of that business. In our last report, a medium-sized business operating in New York City paid 0.3% of its commercial profits in fuel taxes.

Fuel tax is generally collected by the oil companies on behalf of the government and is embedded in the price of fuel. This year, in the U.S., fuel tax is approximately 8.4 cents per gallon, and consumers shell out $3.74 a gallon (as of this writing). Its main purpose is to fund development and maintenance of infrastructure, mainly roads and bridges.

The presumption, by proponents of the holiday, is that the suspension of the fuel tax will drive down the price of gas enough for consumers to feel ‘immediate relief at the pump’. The million dollar question remains, I guess, how immediate, sizable and durable the relief would be.