High gas prices are here to stay

With the price of gasoline rising about 20 cents a gallon in Washington state since Hurricane Katrina barreled into the Gulf Coast, some lawmakers are calling for temporary suspension of the state’s gas tax.

State Reps. John Serben and John Ahern, both R-Spokane, are among the legislators who say motorists and the state’s economy need a breather until prices stabilize. To make up for the lost revenue, House Republicans would dip into the state’s rainy-day fund.

The assumption is that prices would drop significantly if the 31-cent-a-gallon state levy were removed. But that isn’t at all certain. Georgia, which is a lot closer to the hurricane damage zone than Washington, suspended its gas tax. Thus far, the average price has fallen only 2 cents per gallon for regular unleaded gas to $2.98.

In 2000, Illinois and Indiana invoked temporary gas-tax holidays when gasoline cost about $1.80 per gallon. (Remember when that price was intolerable?) The savings for consumers were minimal. That’s because oil companies do not have to lower their prices just because the tax has been removed. Even if the price were to drop temporarily, demand would rise, triggering price increases.

Motorists already have demonstrated they’re willing to shell out $3 or more per gallon without dramatically altering their lifestyles. If oil companies can get that price, that’s what they will charge.

The upshot of a gas-tax holiday could be a lowering of the state’s reserves without any appreciable relief for motorists and the state’s economy. That isn’t sound fiscal policy. The conservative Evergreen Freedom Foundation is opposed to the move, even though it is against the recent increase in the state gasoline tax.

Evergreen analyst Jason Mercier writes, “The state’s current emergency reserves of $628 million amount to less than 3 percent of the adopted $26 billion 2005-07 state budget. A minimum 5 percent emergency reserve, which would amount to $1.3 billion, is recommended. Besides, the state’s 2005-07 budget already is projected to spend $567 million more than forecasted revenue this biennium. This means, before any caseload increase or inflation adjustment, the state is staring at a significant budget deficit heading into the 2007-09 budget.”

In relative terms, the cost of gasoline has not reached crisis proportions. Though Washington has the highest state gas tax, it currently has below-average costs at the pump.

Even if such a measure were to reduce prices temporarily, it’s foolish to think that the country will be heading back to the days of cheap gas. World demand and the shortage of refineries point to an upward trajectory.

It appears high fuel prices are here to stay. The sooner the nation faces up to that, the sooner we can make smart changes to wean us from our dependence on oil.