Iowa gas tax holiday appears unlikely as prices at pumps rise

DES MOINES — With fuel prices topping $4 a gallon in some places in Iowa, topping off the tank can be a choice between gas and groceries or hitting the road and staying home.

In response to the pain consumers are feeling at the pump, some governors and state lawmakers are calling for gas tax holidays — suspending the collection of gas taxes to provide some relief to motorists who are facing the prospect of even higher pump prices from President Joe Biden’s decision to cut off Russian oil imports.

In Iowa, the average gas price Thursday was $3.924, but topped $4 in many rural areas according to AAA. The price already was rising before the ban on Russian oil. Iowa gas prices averaged $2.80 a year ago and $3.288 a month ago, again, before Russia invaded Ukraine.

Proposals for a gas tax holiday to counter inflation had been moving slowly in Congress and statehouses, but they gained momentum this past week amid surging prices that pushed the national average for regular gas to $4.331.

Iowa lawmakers say they’ve heard little talk of suspending state motor fuel taxes here — 30 cents a gallon state tax on gas and ethanol, and 32.5 cents on diesel fuel.

“We actually just were talking at home about what could you do to actually help folks out and this was before the gas prices even really skyrocketed,” Rep. Jackie Smith, D-Sioux City, said.

The ranking Democrat on the Senate Transportation Committee, Smith feels the pain every time she makes the 400-mile round trip from Sioux City to Des Moines. Her state reimbursement of 39 cents per mile doesn’t cover the gas costs.

“Man, I'm taking a loss every time I drive to Des Moines,” she said, adding, “I'm sure that people are feeling the same way. It makes a difference in a household budget.”

Across the rotunda, House Transportation Committee chair Brian Best, R-Glidden, doesn’t see much prospect for a state gas tax holiday. Since a bipartisan 10-cent gas tax hike in 2015, the now Republican-controlled Legislature has cut Iowans’ taxes, most recently approving a plan to phase in a 3.9 percent flat state income tax rate, he said.

“So I just feel like we have done all we can to help Iowans with taxes,” Best said. In addition, legislators have to be concerned about maintaining Iowa’s roads and bridges. If gas tax collections were suspended, “my question would be at what point would we quit.”

House Speaker Pat Grassley, R-New Hartford, said he heard “rumblings” about gas prices and suspending the gas tax late last week, but doubts a gas tax holiday is in the cards.

“We have roads and bridges that all Iowans want us to continue to invest in,” he said. Suspending gas tax collections “could potentially jeopardize those continued projects.”

Iowa collected almost $675 million in fuel taxes in fiscal 2021, up from $658 million the previous year, according to the state Department of Revenue. A gas tax holiday would reduce revenue by more than $1.8 million a day.

“So I think to really attack the issue that we see with gas prices, the federal government's going to have to take some level of action,” Grassley said.

Smith speculated that the pandemic relief funds specifically targeted to transportation could be used to offset the loss of state motor fuel tax revenue.

“We thought with the infrastructure money coming into Iowa that some kind of a gas tax holiday wouldn't be hurtful to infrastructure projects,” Smith said.

Although governors from both parties have called for suspending either their state gas tax collections or for the federal government to suspend its 18.4 cent tax on a gallon of gas, Iowa Gov. Kim Reynolds isn’t joining them.

Republican legislative leaders in Michigan and Pennsylvania announced proposals to suspend or reduce state gas taxes. That came after the Republican governors of Georgia and Maryland, and Democratic governor of California all called for relief from state gas taxes when Biden ordered a ban on Russian oil imports.

Meanwhile, the Democratic governors of Colorado, Michigan, Minnesota, New Mexico, Pennsylvania and Wisconsin wrote to congressional leaders urging them to support legislation suspending the federal gas tax through 2022.

A federal gas tax holiday would be “only a temporary solution and not practical,” Reynolds said.

A better solution, according to Reynolds, would be for Biden to reverse his cancellation of the Keystone pipeline, ban on new oil and gas development on federal lands and eliminate regulatory hurdles.

“America has what it needs to address its energy crisis and bring down prices at the pump and it’s readily available right here in Iowa — biofuels, but it’s up to the president to take the action,” Reynolds said. “Iowa has the capacity to produce ethanol for the nation starting tomorrow.”

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