gas tax holiday more harmful than good

Posted on April 30, 2008

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With 44 percent of Americans telling a recent poll that rising gas prices is a serious economic concern, it is no wonder that the presidential candidates have weighed in on the issue.

But it would be a mistake to cave in to populism and enact a gas and diesel tax holiday, as proposed by both presumptive GOP nominee John McCain and Democratic hopeful Hillary Clinton. Only Barack Obama has refrained from jumping on the bandwagon, arguing that the idea is too flawed.

Both Clinton and McCain want the federal government to suspend the 18.4 cent-a-gallon federal gas tax and 24.4 cent diesel tax between Memorial Day and Labor Day, traditionally a peak travel period for American families. 

I myself will be doing a 2-week road trip this summer and should be enthusiastic about Clinton and McCain’s proposals, but it is a bad idea at the end of the day.

For one, the savings are small. Experts have calculated that the average driver would save about $2.35 at every trip to the pump, based on a 13-gallon full tank estimate.

But the fiscal hole caused by the gas tax holiday in the federal coffers would be considerable — to the tune of some $10 billion.

That means less investments in roads and infrastructure, at a time when heavier usage of roads and highways would presumably occur. Remember the deadly bridge collapse into the Mississippi River in Minneapolis last summer that took 13 lives and injured 100 others? There should be no compromise in the up-keep and repairs of infrastructure and we can ill-afford to gamble with chance as the nation’s roads and bridges get older.

The politicians have also forgotten to factor in another casualty should the gas tax suspension become reality: jobs. According to a US Transportation Department study, every $1 billion spent of federal highway investments helps support 34,779 jobs. Extrapolating from that, $10 billion in revenue lost to the federal government could mean 347,790 less jobs, if construction projects were halted or killed due to a lack of funding. While it might not ultimately hit that kind of numbers, it still looks like a substantial number of jobs could be lost due to the gas tax holiday. 

Finally, cutting the price of gas for the short-term would only make demand rise and gas prices to follow suit. If prices were artificially lowered this summer, consumers might drive more (not to mention the environmental consequences of that), causing demand to rise, which inevitably leads to higher prices. It would also fail to wean Americans off gas dependence, perpetuating the misery in the long term, making oil producers the only winners.

And after Labor Day, wouldn’t everybody get a rude shock at the 18.4 cent tax being put back in place?

It is election season and it might be clever politics to ease things like taxes. But pandering is short-term and myopic. McCain and Clinton would be better off thinking up more sensible policies that will take the US towards the long-term goal of energy independence rather than scoring small political points that has dire consequences in the long run. 

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