The McCain – Clinton Gas Tax Holiday is a farce and voters are beginning to realize this. Of course, Obama has been correctly outlining the problems all along. There are numerous problems with this approach even if the money would trickle into the hands of the consumers who most need it and therefore spend it on other items. At 18.4 cents per gallon, the family burning two gallons per day would receive a savings of $11 dollars per month or 5% of the cost of gasoline at the current $3.61 per gallon.
And of course, it is a proposal that few in Congress support and President Bush will veto. So, it’s a non-starter and perhaps in the eyes of two candidates a safe proposal aimed to win voter favor without having all the downsides. And there are several.
First of all, the tax generates revenue to pay for roads and bridge maintenance, which if anything is too small for our aging infrastructure. Of the three ways to pay for this, Clinton suggests taxing the windfall profits on Oil Companies while McCain says cut other spending. Let’s start with McCain. Congress has shown little appetite for cutting spending and the Whitehouse seems to agree that deficits matter not to voters. So, he is really offering the third option of borrowing to pay for this when we need to do the opposite.
Clinton wants to tax the Oil companies with a Windfall Profit tax which would do two things. First of all, it would diminish the expected returns on oil production and over the long term would decrease supply. It would in the short term put higher price pressure on Oil and with more demand coming during the summer driving season, it is more likely this added tax expense would be passed on to consumers.
If you want to help consumers and the retailers they visit, there are better ways to insure the money get to the right people. The stimulus package aims (many would argue aims poorly) to get $600 to those who need it most and are most likely to use it. The gas tax suspension would do no such thing.
And now here is the real catch. The realities of market economics cannot be suspended. Demand will increase to a point where it meets supply. Fiddling with the gas tax will not change this and the US Fuel Retail system has very little slack capacity. Therefore, supply is relatively inelastic and prices will move with demand. Bottom line, the gas tax will be eaten by the Gasoline Value Chain and consumers will be left with little in their pocket other than a higher debt and nothing done to solve the longer term energy issues. It’s bad policy, bad economics and it is time for us to show politicians, that pandering for votes is bad politics.