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April 18, 2008

McCain’s Gas-Tax “Holiday” Hurts US, Helps Oil Producers

Posted in: Economy,John McCain,Uncategorized

As the nation sinks into what may become the worst recession in decades and Americans worry about their economic security, John McCain is struggling to prove he’s not clueless about economics. But his proposal this week for a "gas-tax holiday" has been widely panned because it "would do only one thing: send more money to oil producers."

McCain proposed that Congress suspend the tax on gasoline (18.4 cents/gal.) and diesel (24.4 cents/gal) from Memorial Day to Labor Day. (He would also suspend purchases for the Strategic Petroleum Reserve.) But would the tax holiday accomplish the savings and stimulation he claimed?

First, those tax revenues sustain the Highway Trust Fund, which funds building and maintenance of US highways, including the Interstate Highway System. So at a time when the country needs to repair/upgrade it’s infractructure while providing associated jobs, McCain would stop collecting the taxes that make that possible. Missouri’s Republican Senator Kit Bonds: "I don’t see how cutting funds to fix bad roads and fight congestion helps families."

Second, the price of gasoline affects how much people drive. If the price goes up, some people drive less; if it goes down, some people drive more. McCain’s proposal would likely increase driving and thus gasoline consumption. That increases US oil consumption (and oil imports) and puts upward pressure on oil prices (currently about $114/bbl). Result: it puts more dollars in the pockets of oil producers.

If we drive more, we’ll pollute more. It won’t help global climate change either.

Of course, if the amount of gasoline people buy is affected by price then it’s also logical to expect that suspension of the tax while demand is high during the summer could push the price back up towards where it began, which means even higher revenues for the oil/gasoline industry, but the expected "savings" for the driving public would disappear.

There is a reason why European countries and Japan impose much higher gas taxes than we do. They understand that high gasoline demand hurts their economies and harms the environment. It makes them more dependent on imported oil and thus harms their national security. So they impose stiff taxes to discourage gasoline consumption, encourage its efficient use, reduce imports and encourage the development of non-oil alternatives. We should be doing the same thing, but McCain has got it all backwards.

The Wall Street Journal: "McCain’s gas-tax plan may be a clunker." (h/t Aravasis)

According to a white paper circulated on Capitol Hill last week by the U.S. Transportation Department, every $1 billion of federal highway investment supports 34,779 jobs.

Many economists have also questioned the wisdom of suspending or cutting gas taxes; doing so, they say, simply stimulates more consumption of gasoline.

The New York Times:

. . . 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. . . .

“Higher demand just pushes the world price a bit higher, giving a sizable share of the tax refund to oil producers,” said Lee Schipper, an energy expert and a visiting scholar at the University of California at Berkeley.

Similar reviews: McCain proposal "panned" in the Boston Herald; "McCain’s ‘holiday’ would damage US roads, economy" — Kansas City Star; a "campaign retread" — MSNBC.

Having proved again he’d be clueless in handling the economy, McCain is now trying pyschology. He told Fox News that the gas-tax holiday wasn’t really an economic proposal; he just meant it as a psychological ploy to make us feel better. Sure. That works if he doesn’t become President.

So on Tuesday McCain said it would stimulate the economy and the benefits would trickle down to consumers. Now it’s just pandering on the Happy Talk Express.

____________

Here’s some history on gasoline taxes from your government:

On November 5, 1990, President George H. W. Bush approved the Omnibus Budget Reconciliation Act of 1990. . . . The Act increased the Federal gas tax by 5 cents, with half the increase going to the Highway Trust Fund, the other half to deficit reduction.

The Omnibus Budget Reconciliation Act of 1993, signed by President Bill Clinton on August 10, 1993, increased the gas tax by 4.3 cents, bringing the total tax to 18.4 cents per gallon. The increase was entirely for deficit reduction, with none credited to the Highway Trust Fund. However, the Taxpayer Relief Act of 1997, which President Clinton approved on August 5, 1997, redirected the 4.3-cents general fund gas tax increase to the Highway Trust Fund.


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