Cheaper gas for a few weeks alone won’t fix North Carolina’s broken economy

State leaders are spending about $360 million to suspend the gas tax for a few weeks, doing little to actually help families struggling to afford groceries, childcare, and more. The gas tax gimmick holds the same empty promise as the last 13 years of state income tax cuts: disproportionately benefitting the wealthy few while draining public dollars that could make life more affordable for the majority of North Carolinians. 

What does pausing the gas tax actually do? 

State leaders paused the 41-cent-per-gallon state tax on gas for 52 days, through November 30. 

Who pays the gas tax? Fuel suppliers and importers directly pay the motor fuel excise tax, better known as the gas tax, to the state but ultimately pass the cost along to consumers. It becomes part of the price we pay at the pump. 

Who gets the tax cut? The legislation requires gas retailers to pass the full tax reduction along to customers, except on fuel purchased before the suspension took effect on October 10. However, there’s no guarantee drivers will receive the full tax savings, as research has found that enforcing retailers’ compliance is difficult. 

Where could you see the tax cut? Drivers should see a tax reduction at the pump, but state leaders’ claims that the suspension will also lower grocery prices are far less certain. While transportation companies may pay less for fuel, grocery retailers are not required to pass those savings along to shoppers. And even at the pump, changes in oil prices and supply could drive gas prices back up, eating into what drivers would otherwise save.  

Who actually benefits? Not those who need it most 

Suspending the gas tax is projected to cost North Carolina roughly $360 million in lost revenue. But who actually benefits from this $360 million tax cut?  

Despite legislative leaders’ promises to help families struggling with costs, the tax cut will put the least amount of money back in the pockets of those who need it most. That’s because how much someone saves will depend on how much gas they buy, not how much they’re struggling to afford it.

The bottom 60 percent of households, earning less than $86,500, are projected to receive just 24 percent of the $360 million tax cut. That is also the same share expected to go to the richest 20 percent of households alone. And while the richest 20 percent could see $70 back on average per household, the lowest-paid 20 percent could see only $11 — not even enough to fill up their gas tank once. 

Meanwhile, almost 4 out of every 10 dollars in gas tax cuts will go to people outside North Carolina, including tourists, truckers, as well as owners and shareholders of fuel-dependent businesses. 

What the gas tax pause means for state funding 

To replace the roughly $360 million lost from the gas tax suspension, the state is drawing money from its Stabilization and Inflation Reserve, which was created during the COVID-19 pandemic to help cover inflation-related costs and to stabilize the economy.  

The state needs to replace this revenue because the gas tax helps pay for the transportation infrastructure that North Carolinians rely on every day. Gas tax revenue is divided into two major pools of transportation funding:  

• Highway Fund (75%): Pays for maintaining and operating existing transportation infrastructure, including repaving roads, repairing bridges, and helping municipalities pay for local street maintenance through the State Street Aid Program, also known as the Powell Bill Program.
• Highway Trust Fund (25%): Pays for major construction projects, including new highways and road expansions. 

While replacing lost gas tax revenue with reserve funds keeps transportation funding intact, it leaves hundreds of millions of fewer dollars available for more lasting public investments.

The bigger problem: reserves can’t replace reliable revenue

State leaders are taking credit for having enough funds in state reserves to suspend the gas tax, attributing it to years of “responsible budgeting.” But what legislative leaders frame as “responsible” has actually meant years of neglecting funding core public services in order to prioritize tax cuts for corporations and the wealthy few. Just look at their playbook:

1. Cutting taxes and draining revenue: State income tax cuts enacted since 2013 have left North Carolina with almost $18 billion less in annual revenue.
2. Underfunding public services: To make room for continued tax cuts, state leaders have limited funding for public schools, health care, and other ongoing needs.
3. Cushioning reserves instead of investing: As legislative leaders have avoided committing recurring state funds to crucial priorities, they have instead deposited large amounts of General Fund revenue into an increasing number of reserve funds, which are largely available for one-time spending, emergencies, and other uses at the discretion of budget writers.
4. Shifting costs to local governments: As the state faces new costs passed down by the federal government and growing pressure to raise public school personnel pay, state leaders have increasingly shifted costs onto local governments despite them having fewer resources to shoulder them.

Reserves can cover unexpected temporary costs, but they cannot reliably fund the services families count on year after year.

Real solutions for working families require reliable revenue

When the gas tax returns in December, families will still be struggling with high costs of living. The state will have spent millions on a temporary tax cut that does not meaningfully help families who need the most help to get by right now. And it certainly won’t fix North Carolina’s broken economy, where working families still are not paid a livable wage to keep up with the rising costs of basic needs. 

Building an economy that can actually deliver well-being and affordability will require asking the wealthy few and profitable corporations to pay what they owe. With that public revenue, North Carolina could then fund real solutions for working families — from targeted tax credits for low-income households to protecting the safety net programs they could fall back on.