Gas Tax Holiday Is a Stupid Idea
By Brendan Moore
It’s a pretty safe bet that most of you reading this know that Hillary Clinton and John McCain, candidates for the U.S. presidency, have put forth the idea of a “gas tax holiday” this summer whereby the federal gas tax of 18.4 cents per gallon will be suspended. And Barack Obama, the other presidential candidate, has come out as opposed to the idea.
You read the title of this article so you already know what I think about it, but let me elaborate. A gas tax holiday is an incredibly stupid idea. Not as stupid as ethanol from corn, but still blindingly stupid.
First of all, if you want people to drive less and use less gasoline, as almost everyone now states is in our best collective interests, including the two candidates pushing for the gas tax holiday, you raise the price of gasoline, not lower it.
Second, there are not enough stocks of gasoline available to make up for any sudden and short-term increase in consumption. The price of gasoline will quickly adjust itself upward as gasoline becomes more scarce, which means that the oil companies will get the margin between the previous market price and the new market price, which will probably be very close to previous price before the tax suspension. That margin is pure profit for them. The savings envisioned as going to consumers will simply be more profit going to the oil producers.
Third, that tax pays into the Highway Trust Fund, which builds, maintains and improves roads and bridges all over the United States and is already facing a 3.4 billion dollar deficit at this moment. This activity not only employs a lot of people, it makes travel safer and faster. How many people are employed by road and bridge construction? The federal transportation department says every $1 billion in highway spending creates 34,779 jobs, which means the gas tax holiday could cost 300,000 construction jobs. And safer and faster travel means less people die or get injured in vehicles, and, it means less gasoline is consumed while those vehicles are traversing the highways of this great land. It allows people to not use (and buy) as much gasoline as they would otherwise.
Its things like this that make me loathe politicians at times. Even the most cursory analysis of the situation will produce the conclusions I laid out above, and those conclusions produce the assessment that it’s not a good idea. Since Hillary Clinton and John McCain are both smart people, you have to believe they came to the same conclusions without much trouble and are therefore willfully ignoring what would be the right course of action in their angling for votes. It makes me a little crazy, frankly. It’s hard to respect any politician that pushes this sort of ridiculous premise to a desperate electorate.
I’m not alone in my point of view concerning the reasons that a gas tax holiday is a stupid idea.
“That would mean the 18-cent decrease in gas taxes would represent a temporary subsidy to the oil companies”, says James Hamilton, an energy economist at the University of California San Diego.
Eric Toder, a senior fellow at the Urban-Brookings Tax Policy Center in Washington, stated, “You are just going to push up the price of gas by almost the size of the tax cut.”
Greg Mankiw, noted Harvard professor and a former chairman of President Bush’s Council of Economic Advisers, said, “In light of the side effects associated with driving … gasoline taxes should be higher than they are, not lower.”
Gilbert Metclaf, a economics professor at Tufts University currently working with the National Bureau of Economic Research said about the gas tax holiday proposal, “I think it is a very bad idea. If we want people to invest in energy-saving cars, we need some assurance that the higher price paid for these cars is going to pay off through fuel savings,” he said. “It is a very short-sighted, counterproductive proposal.”
No one has ever claimed that politicians get elected appealing to voters’ logic and grasp of the facts, but let’s hope that enough voters passed Economics 101 so that this staggeringly poor idea is not rewarded at the ballot box.
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