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

The combination of high gasoline prices and substantial state budget surpluses is giving legislators from both sides an opportunity: Send cash to people to offset the rising price at the pump.

California legislators proposed Thursday that a portion of $45 billion surplus state budget be spent on sending all taxpayers in California 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.

Durr stated that “Gas prices are rising and inflation is increasing, making it more difficult for New Jerseyans’ to feed their families” in a statement sent to New Jersey boasts a surplus of $10.1 billion. In Minnesota, Gov. Tim Walz (D), has suggested that Minnesota spend some of its $10.5 billion surplus budget on rebates for families, $1,000 and individuals.

Minnesota Republicans and California Republicans have criticised the state rebate plans as not being targeted. They have proposed that gas tax holidays be used to help 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.

Most recently, Georgia was one of a few states that have waived their state gas taxes. Others gas tax holiday bills have been introduced to state legislatures. The federal gas tax has been proposed to be suspended by Democrats in Congress.

The best way to help people is by suspending gas taxes. However, it is not a smart idea.

Road users pay gas taxes for road maintenance. Road users pay gas taxes to fund most highway expenditure at the federal and state levels. The majority of gas tax revenue goes towards roads.

Alex Mureianu, Tax Foundation’s Alex Mureianu wrote in February that the gas tax is a good source for highway funding. “The user-pays principle makes the gas tax particularly sensible,” he said. The tax is an effective funding source because people who drive benefit from the roads more broadly than those who don’t.

While gas taxes do not cover all road expenses, it is clear that these fees (or other user fees) need to be increased, and not eliminated. If they are stopped, states will have to stop planned road work and replace it with general tax revenue. In this way taxpayers could be subsidizing a service that isn’t used.

Tax credits and rebates may not be the most efficient way to address rising gasoline prices or inflation in general, but they are a viable option for spending large 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’s provision of federal aid for this purpose was both fiscally reckless given the nation’s growing debt, and a bit unnecessary considering how much it is still sitting in state coffers. There is no ringing the alarm. It is up to individuals and not the state legislatures to decide how this excess money will be spent. The money is simply a refund for tax they already paid.

The fact that individuals may receive more rebates in New Jersey and California than they pay in taxes can complicate this. Some people will see a return on their income. These proposals also redistribute income.

Libertarians believe it is better for individuals to spend the money rather than have it go on political support and pet programs. This would be true regardless of how low gas prices may fall.