By Craig Erwin, Ph.D.
Consumers are really feeling the sting of high gas prices. In an attempt to help, President Biden has tapped strategic oil reserves to increase the supply of oil, hoping that it will take the pressure off prices. Some foreign countries and U.S. states are cutting fuel taxes, hoping the tax cut will ease the pain for consumers. But tax cuts don’t always help drivers. Sometimes fuel tax cuts make things worse by driving gas prices higher.
Consumers in small states usually benefit most from fuel tax cuts because consumption in small states has little impact on national or global demand. In large states, however, fuel tax cuts can drive demand for gas higher as consumption increases, leading to higher fuel prices. So, cutting fuel taxes in an effort to lower fuel prices can actually result in higher fuel prices. Go figure. Drivers just can’t win.
How much does it cost you to fill your tank? Have you changed your driving habits as gas prices have risen? Will higher gas prices change your summer vacation plans?
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