"Compared with other types of tax relief, tax holidays reduce the efficiency of the tax system and the overall economy," says economist Jonathan Williams, co-author of a report released Friday.
Florida added gasoline to its collection of tax holiday items in 2004, Georgia enacted a gasoline tax holiday in 2005 and Illinois is among a number of states where prominent lawmakers are attempting to enact such a law.
Gasoline tax holidays are intended to lower gasoline prices at the pump. However, a 1-cent temporary gasoline tax holiday will not automatically lead to a 1-cent decrease in retail gasoline prices, making holidays an ineffective way to reduce retail gasoline prices.
Lawmakers often enact gasoline tax holidays with complex accompanying rules and regulations requiring gasoline stations to lower retail prices by the full amount of the tax cut -- effectively levying a price ceiling on the retail price of gasoline, Williams said. Gas tax holidays create administrative complexity, distort market pricing and distract the public from superior tax relief measures, he said.