McCain’s Gas Tax Holiday Plan

Ken AshfordEconomy & Jobs & Deficit, Election 2008, Energy and ConservationLeave a Comment

As a clear campaign ploy, McCain has proposed a gasoline tax “holiday” during the summer driving season.  Basically, it means that federal taxes will be cut from the cost at the pump, thus making gas cheaper.

Senator Clinton has endorsed a similar plan.

Good idea?  Nope:

But economists and energy analysts say it would have little impact on mitigating the rise in gasoline prices. In fact, it could lead to the opposite result.

The federal gasoline tax represents a flat fee of 18.4 cents a gallon nationwide. With gasoline currently averaging $3.39 a gallon, the tax represents a mere 5 percent of today’s pump price. While that’s not trivial, consider that gasoline prices have more than doubled since 2004.

The problem is that lowering gasoline prices at the pump would encourage more consumption. So in the long run, it would push prices up.


“You don’t want to stimulate consumption,” said Lawrence Goldstein, an economist at the Energy Policy Research Foundation. “The signal you want to send is the opposite one. Politicians should say that conservation is where people’s mindset ought to be.”

Mr. Goldstein said that instead of freezing the federal tax, the government should help lower-income populations pay for gasoline.  It would be cheaper and benefit those households that need it most.

Unlike McCain, Clinton’s plan also includes taxing the big gas companies, to make up for the lost revenue (which is used to make the roads better through the National Highway Trust Fund).  Problem with that is that the gas companies will just pass on the cost to consumers, and therefore, we won’t be saving anything.

The problem with rising fuel prices can’t be fixed with a bandaid like a "gas tax holiday" (which will only save you $25 to $30 bucks this summer anyway).

The only true solution is long-term, and it involves raising minimum MPG on cars, and conservation policies (car pooling, etc.).  That’s part of the Obama plan, and it’s the only one that makes sense.  Unfortunately, it’s not a politicallyt expedient as those proposed by the other candidates.  Hopefully, however, people won’t be lured by the dollar sign they think they’re seeing.