Inflation Rebates are Better Than Gas Tax Holidays

High gas prices are making Americans upset, and they may take their anger out at the voting booth in November.  Politicians are looking for a quick fix, and the idea of a “gas tax holiday” sounds tempting.  President Biden has even endorsed it, despite the arguments against it.

For example, a gas tax holiday could stimulate demand (economists call it the “rebound effect”), resulting in higher prices overall.  Ecological economists (and FEASTA members) usually advocate for higher gas (or emission) taxes in order to make lower emitting alternatives more cost effective, but at FEASTA we are also very concerned with the tax’s regressive impacts (it hits lower income people harder as a proportion of their income), and so we focus on “dividends” that return funds collected back to people.

Thankfully, several states are implementing an alternative to gas tax holidays, which would put money in people’s pockets in the short term, while laying the groundwork for a new type of economy that supports people.  This is the type of sustainable economics that FEASTA promotes.  In this case, California Governor Gavin Newsom calls it an “inflation rebate.”  With funds from the State’s budget surplus, Newsom and Legislators put together a $9.5 billion inflation relief package that sends direct payments of up to $1,050 to twenty-three million Californians.

One interesting part of the debate that led to the eventual policy was that Governor Newsom wanted to tie the rebates directly to drivers, using the state’s Motor Vehicle database.  But the Legislature disagreed and the final proposal is more universal.   This means it won’t favor two Tesla households over people who bicycle or take public transit.  California residents had previously received pandemic relief funds from the State through its “Golden State Stimulus” program.

It is not unusual for California to lead the way, and it often gets headlines for being the largest state but other states are also providing checks back to people.

Earlier this month, Maine started issuing direct payments of $850 to residents making less than $100,000 after discovering the state had a large budget surplus.

Illinois’ state budget includes a host of ways to give residents relief from rising prices, including…direct payments of $50 to $100 for some families.

Colorado taxpayers are set to receive anywhere from $400 to $800 later this summer as part of an early tax rebate.

Georgia started issuing direct payments up to $500 to taxpaying residents last month. New Mexico also started giving residents $250 to help relieve the pain of rising prices.

Hawaii’s governor signed a bill into law last week that not only increases the state’s tax refunds, but also raises its minimum wage.

Pennsylvania’s state treasurer announced Monday that those who use a PA 529 plan to save for college will be getting another $100 in their account as a way to offset rising prices. The state’s governor is also continuing to push for a plan to send $2,000 payments directly to people.

Minnesota’s governor has also pitched another round of direct payments, but the Duluth News Tribune reports the plan’s odds of coming to fruition are slim.

Some of those state plans contain a mixture of policies FEASTA supports and doesn’t support, but the direct checks to people is the latest example of the growing political acceptability of that approach, which could eventually lead to climate dividends or a basic income.

As Maine Governor Janet Mills stated,

“We have shown once again that through hard work, Democrats, Republicans, and Independents can come together to do what is right for Maine people — and that we can do so without the rancor or bitter partisanship that has divided Augusta in the past. We may not be able to control inflation or global markets, but we can make sure that Maine people have what they need to grapple with these rising costs – and that is what we are doing. Today, I am here to say to Maine people: help is on the way.

With rhetoric like that, a basic income may be on the table sooner than we think.

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