As he prepares to run for office in November, Illinois Governor JB Pritzker provides three forms of tax relief to reduce household spending for Illinoisans during a time of high inflation. In addition to suspending the 1% state sales tax on groceries and giving homeowners a $300 property tax rebate, Pritzker has proposed skipping the planned 2-cent-per-gallon increase. gasoline tax for a year. The increase is required by an Illinois law, signed into law in 2019, that indexes the state’s gasoline tax to a measure of consumer price index inflation.
This best practice preserves the purchasing power of gas tax revenues over time, so that gas tax-funded programs are not harmed. This has happened before when Illinois gas was previously stuck at 19 cents a gallon for two decades because the tax increase is politically unpopular. So it was a milestone when the tax was doubled to 38 cents and indexed to inflation in 2019 as part of the Rebuild Illinois infrastructure funding program.
There are some issues with Pritzker pausing the planned gas tax hike in order to earn points with voters. For starters, gasoline purchasers may not see the full discount, since the gasoline market does not necessarily “pass” a lower tax to drivers. Pass-through rate is highly dependent on location – including proximity to neighboring states with different gas pricing policies – and competition.
Former Governor George Ryan (one of several Illinois governors eventually jailed for corruption) signed a bill that suspended the full gasoline tax of 19 cents for six months in 2000. This bill required gas stations to display a sign stating that the gas tax had been suspended, in order for the state government to get credit for it. On the other hand, Pritzker proposes to not raise the tax from its planned two cents.
Pritzker estimates that skipping the gas tax increase will save drivers money and cost the state $135 million. Notably, he offered no cost-cutting measures for Illinoisans who need or want to use public transportation instead of driving. (There’s also no rebate for people who rent rather than own homes and therefore won’t directly benefit from the property tax rebate.)
Another potential downside of the plan is the potential for hiccups when it comes time to re-implement legally required indexing after the one-year suspension. One detail that should be ironed out is the post-suspension price. Will it be based on current tax, so an entire year of increase will be skipped? Or will the new level of taxation be based on what the tax would like would have been if the suspension had not taken place?
Preserving the state’s purchasing power during a period of high inflation is even more important in 2022, as cities and states receive funding from the Federal Infrastructure Investment and Jobs Act, putting them competing with each other for more expensive concrete and steel, and a finite pool of experienced construction workers in times of labor shortages.
And then there’s the possibility that when motorists save money on gas, they choose to drive more, which means more congestion, pollution and accidents. However, a status report following the six-month suspension in 2000 noted that there was a decrease in gas mileage, although the researchers did not investigate why this might have been the case. Also, as I mentioned earlier, temporary or small gas tax cuts don’t necessarily reach consumers, so drivers may not actually see lower prices at stations. -service. If that turns out to be the case with the upcoming tax holiday, then the $135 million cost to the state could be a boon for the fuel industry, but not for consumers.
Overall, with benefits and side effects that seem elusive, it seems this policy change may be ineffective at anything other than helping Pritzker get re-elected. The governor should come up with a relief plan that more equitably benefits all Illinois and has more predictable impacts.
For example, for the same $135 million that Illinois would lose by skipping the gas tax increase, the state could send all 9.8 million adults in the state a check. $14 (minus shipping and handling). This would ensure 100 percent of proposed economic aid reaches Illinois, rather than eventually being diverted to the fuel industry.