An 18-cent disparity in the cost of a gallon of gas between Maryland and Virginia appears to support predictions of radical price changes after lawmakers in both states took widely different approaches to raising transportation funding through gas taxes this year.
But analysts say it’s too soon to judge how big a factor the political maneuvers will be in driving the costs of fuel in the states in different directions.
Virginia gas prices were projected to drop by about 6.5 cents per gallon after Gov. Bob McDonnell, a Republican, shepherded unprecedented legislation to eliminate the state’s 17.5-cent-per-gallon tax through the General Assembly. A bipartisan compromise eliminated the gas tax but levied a wholesale tax borne by retailers that amounts to a roughly 11-cents-per-gallon tax when passed on to consumers.
But prices have not fallen as anticipated. The average gas price in Virginia was $3.38 on Monday, compared to $3.36 on July 1 when the law took effect in both states.
In Maryland, a bill signed by Gov. Martin O’Malley, a Democrat, increased the gas tax 4 cents per gallon this year, to 27.5 cents per gallon. The tax will increase to 43.5 cents per gallon when fully implemented in 2016. Lawmakers also tied the tax to the rate of inflation, meaning future increases will occur automatically as is done in 16 other states.
The average price of gas went from $3.45 on July 1 in Maryland to $3.56 on Monday. The national average was $3.57.
Maryland now ranks 23rd in the nation for highest gas prices and Virginia ranks 45th.
“Maryland has gone from being a modestly priced state for gasoline to one of the most expensive places almost overnight,” AAA Mid-Atlantic spokesman John B. Townsend II said.
Nationally, higher gas prices, only recently on the decline, have been attributed to fluctuations in oil prices because of unrest in the Middle East.
Tax analyst and George Washington University professor David Brunori agreed that while gas taxes can alter prices by a few cents, “supply and demand are much bigger factors,” causing prices to swing up and down by as much as 25 cents in a week. Analysts believe market factors — including season, distance from refineries, the number of area gas stations and especially the price of crude oil — cause greater weekly fluctuations in gas prices.
Michael Cassidy, president and CEO of the Commonwealth Institute for Fiscal Analysis, a liberal-leaning Richmond-based think tank, said it’s “too early to tell” whether Virginia’s tax legislation is significantly affecting fuel prices that have held steady.
“I’m not sure it would be fair to link that to tax policy change,” he said.
Some analysts say market forces might have kept Virginians from seeing the lower prices they expected, while others have suggested retailers could be raising prices to correspond with the tax cut.
Carl Davis, senior analyst at the D.C.-based Institute for Taxation and Economic Policy, noted that fuel prices in Virginia have not only not dropped, but they have not dropped relative to North Carolina — a state on Virginia’s southern border that did not adjust its gas tax this year.
“The most important factor is crude oil, but a lot goes into it,” he said. “The thing we know that hasn’t really been affecting gas prices is gas tax.”