Several states in the U.S. have started to implement gas tax holidays, and prices have been dropping dramatically in those areas.

However, some industry analysts are warning temporarily cutting the gas tax will ultimately have the opposite effect on prices as demand for gasoline increases.

The single biggest factor influencing gas prices outside of the price of oil is demand. That is why we saw prices drop in New Jersey and around the nation the last two weeks.

Maryland was the first state to offer drivers a gas tax holiday and cut their gas tax by 36-cents for 30 days.

Georgia did the same a few days later, suspending its 18-cents gas tax.

Industry analyst Patrick De Haan from GasBuddy.com says prices did drop below $4 per gallon for regular, but demand for gasoline has increased.

Georgia saw demand for gasoline increase 13%. In Maryland it was up more than 26%. Nationally demand grew less than 9%.

While prices have dropped in both states, De Haan says demand will cause small increases to begin. Initially, drivers may not notice much change, but when both states start charging fuel taxes again, prices will jump significantly higher. Those price hikes will also come just as the summer driving season begins.

De Haan says he knows the idea of a gas tax holiday is popular with motorists and some elected officials but urges states to "think of a different approach."

"Tax holidays are boosting demand and putting additional upward pressure on price," De Haan warns, "Consumption must be cut for realistic price drops." He says that may be "unpopular," but it's the "only thing that will work."

In addition to the sudden shock when the tax holidays are over, the impact to state budgets can also be severe.

According to the Baltimore Sun, the 30-day tax break in Maryland will cost the state more than $93 million dollars in revenue that was dedicated to road and bridge repair.

New Jersey's gas tax is also earmarked for infrastructure and is tied directly to the Transportation Trust Fund. That was the main reason Gov. Phil Murphy cited as not being supportive of a gas tax holiday.

Murphy does, however, support a federal gas tax holiday.

"The best move, in my opinion, bar none," Murphy said, "Is for the feds to do a federal tax holiday. They can print money, we cant."

At least two bills proposed in the Legislature would suspend part, or all, of New Jersey's gas tax. Neither has been scheduled for a vote.

Murphy did signal he would be open to discussing a proposal by State Sen. Edward Durr. Durr has proposed offering a $500 tax credit on your state income tax return to help families cover the additional money they are paying for gas.

As of Tuesday, the average price of gas in New Jersey was $4.21 per gallon for regular, according to AAA. Oil prices have been falling amid hopes for an end to the Russian invasion of Ukraine. If that trend continues, gas prices will begin to fall on their own.

Eric Scott is the senior political director and anchor for New Jersey 101.5. You can reach him at eric.scott@townsquaremedia.com

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