The gasoline-tax holiday as proposed by Sens. Hillary Rodham Clinton and John McCain may be good politics, but it’s bad economics, very bad economics.
The idea is to suspend that 18.4-cents-a-gallon federal gas tax from Memorial Day to Labor Day, supposedly as a way of bringing some relief at a time many families take to the roads for summer vacation.
The actual benefits of the holiday are small, about $28 per motorist over the course of the summer, according to state transportation officials. And that’s assuming the tax savings are passed on to consumers and that the savings aren’t wiped out by further increases in the price of gas. Indeed, the tax holiday itself could drive up the price by increasing demand.
Clinton’s rival, Sen. Barack Obama, called the plan “a classic Washington gimmick.” It is also a gimmick Obama endorsed at the state level in 2000 as a member of Illinois’ legislature. The suspension seemed to have no discernable effect, and the senator’s campaign says those dubious results are why he opposes it now.
Economists seem overwhelmingly opposed to the gas-tax holiday. Asked over the weekend about this lack of support, Clinton airily said, “I’m not going to put my lot in with economists,” whose views she dismissed as “elite opinion.” That’s moderately disturbing. Instead of “elite opinion,” we would say “people who know what they’re talking about.”
“Let’s listen to what the people are telling us,” the New York senator said later in North Carolina, “because if we listen, we will hear this incredible cry.” Maybe not so incredible. A new CBS/New York Times poll found that 49 percent of voters nationally thought a gas-tax holiday was a bad idea; only 45 percent were in favor.
If suspending the gas tax for three months wouldn’t do much for the average motorist, it would be a major hit, on the order of $8.5 billion, to the federal highway trust fund that bankrolls road and bridge construction.
Clinton would pay for that shortfall by taxing the oil companies. Whatever the merits of an excess-profits tax — and who is to say how much is “excess” — using the tax code as a backdoor way of trying to drive down the retail price of gasoline is terribly inefficient, probably unworkable and thoroughly bad tax policy.