## A Primer on the Gas Tax Holiday

If a gas tax holiday drives the price down by the full amount of the tax (18.4 cents), the average driver would save about \$28 (\$27.67) between June 1 and September 1.  But we think the price would fall by only a small fraction of the 18.4 cents tax – so instead of \$28, the average driver might save \$5 to \$10.

Here’s how we get the \$28 figure:

Average annual per vehicle gas use (from AAA) = 550 gallons

Percent of annual miles drive in June, July, and August = 27.4.  Calculated from data in 2001 National Household Travel Survey.

Multiply 550 x .274 = 150.6 gallons consumed in summer months.

At 18.4 cents per gallon, this comes out to \$27.71

Other Relevant Information

The average price of regular unleaded gasoline increased from \$1.85 in 2004 to a projected \$3.54 in the summer of 2008.   This price increase will cost the average consumer about \$260 in the summer of 2008 (assuming no reduction in gasoline consumption), compared to what he would have paid at 2004 prices.

The tax rate has remained constant since 1993 at 18.4 cents per gallon.  This means the tax as a share of the price has dropped from 9.9 percent to 5.2 percent.  In comparison, average gasoline prices increased by 13.6 percent (41.5 cents) between January and April.  So even if the price falls by the full amount of the tax, it would wipe out only about 44 percent of the price increase in the last three months.