June 1 was a busy day for Kathy Hochul. After a string of morning meetings in Albany, the New York governor took a helicopter ride to LaGuardia airport, where she was due for a ribbon cutting at a newly revamped Delta terminal. But she couldn’t resist making a detour to a nearby BP station for a photo op promoting one of her flagship budget items: a seven-month suspension of the state gas tax, which took effect that day.
“By suspending certain fuel taxes for the next seven months, New York is providing some $609 million in direct relief to New Yorkers — a critical lifeline for those who need it most,” Hochul said. She has since continued to highlight the gas tax holiday as one of her core policies to fight inflation, a top issue for many voters in the November election.
But a new analysis by the Institute on Taxation and Economic Policy (ITEP), prepared for New York Focus, shows that out of every dollar the policy cost the state, less than 50 cents made it to New Yorkers’ pockets.
Nearly a third of the tax benefits are retained by fossil fuel companies, the analysis found. Another 22 percent are going to out-of-state residents, and 6 percent are going to New York’s richest 5 percent of households. That leaves just 42 percent of the tax benefits going to the remaining 95 percent of New Yorkers — the ostensible target of the subsidy.
Gas tax holidays “are politically expedient, but just bad tax policy,” said Marco Guzman, state policy analyst at ITEP. “It’s something that it seems like everybody can get on board with, but unfortunately, it has these drawbacks that really make it ineffective and inefficient.”
New York was one of five states that moved to suspend their gas taxes this spring, as prices at the pump shot up following Russia’s invasion of Ukraine. Other states put gas tax increases on hold, and New Jersey recently cut its rate by one cent per gallon for the next year. But New York’s subsidy is the biggest, spanning more than half the year and covering one of the country’s largest economies. The $600 million price tag dwarfs those in the four other East Coast states that implemented similar policies.
Initially a Republican priority, the move to suspend the gas tax won bipartisan approval during budget season, with even environmentally minded lawmakers getting on board. Republicans are now pushing to extend the policy next year, an idea that Hochul recently signaled she might be open to.
“Governor Hochul is deeply committed to helping keep money in New Yorkers’ pockets as they continue to face rising costs and inflation during a national affordability crisis,” spokesperson Justin Henry told New York Focus. He declined to elaborate on whether Hochul planned to extend the gas tax holiday.
Watchdog groups have long argued that suspending the gas tax would harm New York’s climate and economic justice efforts. In March, more than a dozen environmental, transit, and anti-poverty groups warned that the policy “would disproportionately benefit those who need help the least,” while the Daily News editorial board called it “a foolish short-term stunt.”
Temporary tax breaks also tend to build their own political momentum, making the taxes much harder to restore than to cut, said Rachael Fauss, senior policy advisor at the good government group Reinvent Albany.
“Once you open that door, it’s hard to roll it back,” Fauss said. Still, once election season is over and lawmakers return to Albany, she hopes they will take a hard look at what the gas tax holiday is costing the state.
The lost revenue would normally go toward funding road maintenance and mass transit around the state, in a roughly 60–40 split. That long-established split aims to ensure not only that drivers — who skew higher-income — pay for the infrastructure they use, but also that they help fund less polluting modes of transportation, disproportionately used by low-income people.
The MTA is facing down a $2.5 billion budget deficit by 2025, largely due to pandemic ridership declines. It alone is due to lose $100 million or more in dedicated funding from the gas tax this year. The state has promised to cover that amount from its general fund, but replacing dedicated funding with year-by-year allocations competing with other priorities can make cuts likelier down the line.
“If you’re using a gas tax to fund mass transit or to fund road repairs, and then you’re cutting that source of funding off, you’re basically shooting yourself in both feet,” said Rachel Weinberger, a transportation expert at the Regional Plan Association.
Drawing down the general budget to make up for the gas tax amounts to subsidizing driving, one of New York’s largest sources of carbon emissions, even as the state’s Climate Action Council says the state needs to help more people get out of their cars in order to meet its climate mandates. (And the tax holiday is far from New York’s only fossil fuel subsidy.)
Jorge González-Hermoso, a researcher at the Urban Institute, says boosting alternatives to driving would also be a more effective way of combating inflation. Promoting a gas tax holiday, he said, may only incentivize people to drive more, canceling out savings from the tax break.
Several states have tested pro-transit policies as a form of inflation relief. New Mexico reduced train fares by 75 percent through the end of the year, mirroring a popular discount in Germany that is estimated to have cut carbon emissions by nearly two tons.
Connecticut, which enacted a gas tax holiday similar to New York’s, simultaneously made all buses free; by August, ridership exceeded pre-pandemic levels.
“There were certainly better uses of the money from an environmental perspective,” Senate finance committee chair Liz Krueger told New York Focus in September.
Still, Krueger said she voted for the gas tax holiday after being swayed by colleagues from upstate areas where driving is the only way to get around. Fellow lawmakers described constituents being “trapped in their homes” because they couldn’t afford to fill up the tank, “and I couldn’t tell those representatives that they were wrong on behalf of the people of most places outside of the big cities,” Krueger said.
But almost all of the country’s most car-dependent states, from Montana to Indiana, have kept their gas taxes in place. Many states have meanwhile pursued other forms of relief: California opted to send debit cards worth up to $1,050 to all lower- and middle-income residents. Governor Gavin Newsom’s initial proposal to target the payments specifically to car owners was ditched in the final plan, and Newsom is now proposing a windfall tax on oil companies to help pay for it.
Hochul’s office noted that New York has enacted a variety of other measures to help residents pay for housing and other necessities coming out of the pandemic, most notably a $2 billion tax break for middle class homeowners and a $475 million boost to earned income and child tax credits for low-income New Yorkers.
As for the gas tax holiday, it does seem to be making a dent in prices at the pump. Before the gas tax was suspended, regular gas prices in New York trended above the national average, by five cents or more; since June, they’ve dipped just below national prices, by about half a cent on average over the last five months, according to federal data.
But even if it succeeds in providing some short-term relief, critics say, such a costly subsidy only postpones an overdue reckoning with car dependence.
“Your car is very expensive to operate — more expensive than you realize,” Weinberger said. “So we essentially are in this nanny state, preventing people from making good choices for themselves and for the environment, because we’re sort of mucking up what the choices actually cost.”