Gov. Larry Hogan and top leaders in the Maryland General Assembly agreed to lift the state’s tax on gasoline and diesel to help blunt sharply rising costs for motorists.
Lawmakers plan to act in the coming days to pass the monthlong tax break for drivers, House Speaker Adrienne A. Jones and Senate President Bill Ferguson, both Democrats, said in a joint statement.
The idea gained traction quickly Thursday afternoon after Comptroller Peter Franchot, a Democrat running for governor, called for a three-month gas tax holiday to ease pressure on pinched wallets. Republican Hogan followed with his own call for a temporary suspension of the gas tax “to help with the pain at the pump.”
Maryland currently taxes gasoline at just under 37 cents per gallon and slightly more for every gallon of diesel fuel sold in the state, funds that are earmarked to pay for highway and transportation construction and maintenance projects.
Fuel prices, which already had been rising steadily, shot up significantly in recent weeks after Russia, a major global energy exporter, invaded neighboring Ukraine. Western governments, including the United States, responded to the bloody ongoing invasion by imposing stiff sanctions on the Russian government and economy, including a ban on importing Russian oil.
“During the last month, Marylanders have seen gas prices increase exponentially, compounding existing rising costs,” Ferguson and Jones said in the joint statement. “This swift action will help ease the financial burden on everyday Marylanders while keeping the pressure on Vladimir Putin and the Russian oligarchs who have enabled him.”
It wasn’t immediately clear exactly how much the monthlong tax break for motorists would cost. Last year, the state collected $860 million in motor vehicle fuel taxes, a figure that works out to roughly $72 million per month. Lawmakers plan to leave the state’s separate tax on aviation fuel in place.
Maryland’s move to lift the gas tax comes amid similar calls by a growing number of governors and state lawmakers in other states. Rising gas prices also prompted the Democratic governors of Colorado, Michigan, Minnesota, New Mexico, Pennsylvania and Wisconsin to send a joint letter to congressional leaders urging them to suspend the federal government’s 18.4-cent-a-gallon gas tax through 2022, a step that Hogan also endorsed.
Critics of the proposals say there is no guarantee the savings would get passed on to consumers and worry that suspending gas taxes could hurt funding for road projects. There are also concerns that the breaks could become permanent, crippling future government transportation funding, because letting the per-gallon taxes kick back in could prove politically unpopular.
Gas prices nationally averaged $4.25 a gallon on Wednesday, according to AAA. Though average gas prices are at record levels, they are not yet the highest Americans have paid when adjusted for inflation. The previous record high of $4.10 a gallon in July 2008 would be equal to about $5.24 in today’s dollars.
Maryland’s fuel tax rates are tied to inflation and are slated to increase automatically in response to rises in the Consumer Price Index, which has jumped nearly 7.5% since February 2021. Unlike a sales tax, fuel taxes are charged as a fee on each gallon sold at the pump rather than as a percentage of what a driver pays to fill a tank.
Republican state lawmakers, who are outnumbered about 2-to-1 in the General Assembly, have proposed either pausing inflation-adjusted increases or permanently freezing the state’s per-gallon tax.
The deal Thursday to pause Maryland’s gas tax came just hours after the state’s Board of Revenue Estimates raised forecasts of the state’s already sizable budget surplus an additional $1.6 billion over the next two years, citing a stronger-than-expected recovery for the state’s economy from the coronavirus pandemic.
Income and sales tax collections have been brisk so far this year, according to David Farkas, deputy director of the Maryland Bureau of Revenue Estimates.
Maryland Policy & Politics
Farkas said surging tax revenues reflected rising wages, strong business sales and the success of federal and state government stimulus programs. But he noted the recovery “has been very unequal,” with people in high-wage jobs bouncing back quicker and faring far better than many low-wage workers. Rising pay for higher earners has significantly boosted state income tax revenue, Farkas said, even though the state still has about 100,000 fewer jobs than before the pandemic.
Franchot, a member of the Board of Revenue Estimates, responded to the rosy budget revision by pitching a three-month suspension of the gas tax — along with another round of cash stimulus checks to lower-income Maryland residents.
Hogan administration Budget Secretary David Brinkley urged lawmakers to funnel more of the extra cash into the state’s rainy day fund as insurance against severe budget cuts in a future economic downtown. Brinkley also urged Democrats to back Hogan’s call for exempting retirees from all state income taxes.
Democratic leaders in the General Assembly have consistently sounded cautious notes about spending the budget surplus beyond one-time investments on things like new infrastructure projects or renovating existing state facilities. But they have kept the door open to a range of tax cut proposals, including Democrat-backed legislation to exempt some everyday household items like diapers from sales taxes.
House Appropriations Chair Maggie McIntosh, a Baltimore Democrat, said Thursday that negotiations between legislative leaders and the Hogan administration over a retiree tax cut also are ongoing — “we haven’t reached an agreement yet, but we do want to see retirees in Maryland have less of a tax burden” — as are discussions about creating a refundable child tax credit for families modeled after the recently expired federal program.
McIntosh, speaking before Jones and Ferguson issued their statement, said she was relatively wary of suspending the gas tax. Many working or lower-income Maryland residents rarely drive or don’t own vehicles, McIntosh said, meaning they wouldn’t benefit from the tax break even as they’re hit by other rising costs like groceries or rent.
The Associated Press contributed to this article.