Welcome to July! As the nation prepares to celebrate its birthday, residents in 5 states might not feel too festive when they’re forced to spend more at the pump.
Gas prices are set to rise from modest penny increases to double-digit increases just as we enter the Fourth of July, a high-demand travel period when over 40 million Americans are expected to travel by automobile.
While everyone will be paying more at the pump in a handful of states, the impact of these prices increases will be felt differently depending on your income level. Simply put, middle-class and poor households will take the brunt of the gas-price increases because they pay more of their income for gas.
Gas prices are set to rise in these 5 states starting this week:
- Illinois – gas tax doubling to 38 cents from 19 cents per gallon (pre-increase avg. price $2.89 per gallon)
- Ohio – gas tax up 10.5 cents (pre-increase avg. price $2.67 per gallon)
- California – gas tax up 5.6 cents to 47.3 cents per gallon (pre-increase avg. price $3.74 per gallon)
- South Carolina – gas tax up 2 cents (pre-increase avg. price $2.35 per gallon)
- Tennessee – gas tax up 1 cent (pre-increase avg. price $2.40 per gallon)
Gasoline is one of those goods that families have to spend money on each week or throughout a month.
Unlike dining out or new clothes, gas is a good that drivers must purchase frequently to get to work, shuttle the kids around, or fuel their gig work. Drivers have no choice other than to pay it, so price increases on gas eat up more of their budgets,
In effect, there are really no substitutes for gasoline if you have a car that runs solely on gas. Certainly, you can buy a hybrid or electric vehicle, but that takes time and money. In economics, we categorize gasoline as price inelastic.
Families of different income levels feel the impact of tax increases on gas differently. Excises tax on gas is considered regressive. While there’s some disagreement on just how regressive gas taxes are, economists generally agree that middle class and poor households spend more of their income on gas than wealthier households. One analysis finds that “state excise taxes on items such as gasoline, cigarettes and beer take about 1.7 percent of the poorest families’ income, 0.8 percent of middle-income families’ income, and just 0.1 percent of the income of the very best-off.”
States may think they have good reasons for increasing their gas taxes, but they cannot run from the added burden it places on their residents, especially those who have the least means. Even middle-class families which have more income may cut back on spending in other areas because of the gas-tax increase.
With low unemployment, rising wages, and tax cuts, families are finally getting financial relief. Should states really be moving in the other direction to take away more of their incomes through tax increases?