Published: May 06, 2008 04:34 pm            

Just a gimmick — 05/07/08

Gas tax holiday is good politics but bad economics

The gas-tax holiday proposed by first John McCain and then Hillary Clinton is a gimmick that may be good politics, but is bad economics. No wonder its chances of being approved by Congress range between slim and none.

Both Republican McCain and Democrat Clinton are proposing that the 18.4-cents-per-gallon federal tax on gasoline be suspended from Memorial Day to Labor Day. That supposedly will bring families some relief from high gasoline prices during the summer vacation season.

Some relief, maybe, but not much. State transportation officials say the actual savings will be about $28 per motorist over the course of the summer vacation season.

Of course, that’s assuming that the savings are passed on to consumers. There’s no guarantee of that. It is not easy to find a direct link between what consumers pay in federal and state gasoline taxes and what they pay at the pump for gasoline. For example, the state gasoline tax in neighboring Ohio is considerably more than it is in Kentucky, but it is not unusual to find gasoline selling for less at some locations in Ohio than in Kentucky.

There also is the possibility that further increases in the cost of crude oil will drive gasoline prices even higher, exceeding the 18.4 cents per gallon saved as a result of the gasoline tax holiday. And if the tax holiday encourages motorists to drive more, that increased demand could result in higher prices.

And let’s not forget that federal gasoline taxes go for construction and maintenance of federal highways. Suspending the tax for three months would cost Uncle Sam about $8.5 billion in revenue — all of it earmarked for highway and bridge projects. Of course, Congress never let a lack of revenue prevent it from doing anything, but it does mean suspending the tax will increase the federal deficit. That’s irresponsible. If Congress wants to cut taxes by $8.5 billion, it should reduce highway expenditures by that much.

But Hillary Clinton has a plan for making up the lost revenue from the gasoline tax holiday: Tax the oil companies. Is she really so naive to believe that the oil companies will not pass any increase in taxes along to consumers?

Economists are overwhelmingly opposed to the gas-tax holiday, but that doesn’t deter Clinton. “I’m not going to put my lot in with economists,” whose views she dismissed as “elite opinion.” Some would say that “elite opinion” is just the type of expert opinion presidential candidates — and presidents — should be listening to.

As she has traveled the campaign trail, Clinton said she has heard the “incredible cry” from ordinary people for the tax holiday. However, a new CBS/New York Times poll found that 49 percent of voters nationally thought a gas-tax holiday was a bad idea; only 45 percent were in favor.

That’s not how we would define an “incredible cry.”

        

• Click to discuss this story with other readers on our forums.