INDIANAPOLIS — Indiana residents are about to feel the pain at the pump even more as the gas tax increases once again.
“I think it’s important for people to understand that the fuel is taxed two ways in the state,” said Denvil Duncan, an associate professor at the IU Bloomington O’Neill School of Public and Environmental Affairs.
The Indiana Department of Revenue recently published the gasoline use tax calculation for July. The calculation shows the rate starting July 1 will be 29.1 cents per gallon, up from 24 cents in June.
The department calculates the gasoline use tax by taking the average retail price per gallon of gasoline in the prior month and multiplying it by the state retail tax of .07 cents. The state said the average retail cost was $4.1586.
“I think just trying to explain to people why things are the way they are, goes a long way with trying to help people process what’s happening,” Duncan said. “What this means is, whereas the excise tax point is fixed and only changes whenever the legislature decides to change the tax rate, that sales tax on it is going to track the price of fuel in the state.”
“Right now we’re in an environment where the price of fuel is going up and as long as that price keeps going up, the amount of that tax will keep going up,” Duncan added.
In addition to the gasoline tax, people buying gasoline pay additional state and federal taxes. In June, they paid 32 cents per gallon in gas excise tax, which goes towards infrastructure projects, and a federal tax of about 18 cents per gallon.
People buying gasoline in Indiana will also see an increase in the state excise tax in July. The tax will increase from 32 cents to 33 cents due to an annual increase as per Indiana law.
If the average retail cost of gasoline remains at $4.1586 in July, people would end up paying around $4.96 at the pump. However, as of June 20, GasBuddy reports the average cost of gas in Indiana is about $5.13.
“It’s astronomical at this point,” said Kevin Lyons, a Hoosier driver, who estimates it’s been costing him at least $25 more than he used to pay when he fills his gas tank.
The gasoline tax use tax has increased steadily since it reached its lowest point on record in June 2020. In May, the tax passed the previous record of 22.9 cents set in July 2014.
Because the gasoline use tax follows the track of fuel prices in the State of Indiana, experts don’t expect to see that number drop as August rolls around.
“Unless the policymakers do something to kind of stop this, I suspect we will see them continue to see an increase in the gasoline tax in the coming months,” Duncan said.
Indiana Democrats have been continually calling for Indiana’s gas excise tax and gasoline use tax to be suspended. However, Governor Eric Holcomb argued that he doesn’t have the power to suspend the state’s gas tax.
“For an Indiana governor to suspend the gas tax through a declaration of an energy emergency, the state must have an existing or projected energy shortfall that would jeopardize life, health and property,” Holcomb said in a statement. “We have not met that threshold.”
Republican legislative leaders argued that much of the gas tax money was dedicated to the state’s highway construction program and they, instead, pushed through a plan for gradually cutting Indiana’s individual income tax rate over the next seven years.
“Generally it should be understood that the fuel tax in the U.S. is one of the main revenue sources for road infrastructure,” said Duncan. “That is true across pretty much across all states and at the federal level it’s almost 100 percent between highways and mass transit.”
Instead of suspending the gasoline use tax, Governor Holcomb announced a plan to return $1 billion from the state reserves to Indiana taxpayers. The Governor said the $225 payment would help them deal with high gas prices and inflation.
The White House is examining the issue of high gas prices on the federal level, exploring options for relief. The Washington Post reports senior aides are taking a second look at some previously rejected ideas, including seeing gas cards to Americans.
On Monday, President Joe Biden said he is considering a federal gas holiday on the gasoline tax. This would take away about 18 cents per gallon at the pump.
Economic experts say it’s unclear how much of an impact suspending the gas tax could have for Hoosiers.
Jackson Dorsey, an assistant professor of business economics and public policy at the IU Kelley School of Business, points out past studies have shown you might not see the entire tax cut go back into your wallet.
“It may reduce prices a little bit, but producers might also respond by increasing prices,” Dorsey explained.
Members of the White House are meeting with CEOs of major oil companies to discuss rising oil prices.
In the meantime, Hoosier drivers said they don’t feel like there’s much they can do at this point besides ride out the wave until gas prices drop again.
“I mean, you’ve gotta pay for gas. What are you gonna do unless you’ve got an electrical car,” Lyons said.
“What can we do? If we’ve gotta get around, we’ve gotta pay the price of it,” said Andy Anderson.
Courtney Spinelli contributed to this report