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It's a Boondoggle: the Gas Tax Holiday

Everybody who knows anything about energy policy and/or tax policy is calling the gas tax holiday a cynical political pander by Senators McCain and Clinton. Here's the usually Clinton-friendly Paul Krugman:

John McCain has a really bad idea on gasoline, Hillary Clinton is emulating him (but with a twist that makes her plan pointless rather than evil), and Barack Obama, to his credit, says no.

Why doesn't cutting the gas tax this summer make sense? It's Econ 101 tax incidence theory: if the supply of a good is more or less unresponsive to the price, the price to consumers will always rise until the quantity demanded falls to match the quantity supplied. Cut taxes, and all that happens is that the pretax price rises by the same amount. The McCain gas tax plan is a giveaway to oil companies, disguised as a gift to consumers.

Here's economist Dean Baker:

...almost all economists would agree that the tax cut proposed by Senators Clinton and McCain would save consumers nothing. With the supply of gas largely fixed by the capacity of the oil industry (they claim to be running their refineries at full capacity), the price will not change in response to the elimination of the tax. The only difference will be that money that used to go to the government in tax revenues will instead go to the oil industry as higher profits.

Tom Friedman:

[The idea] is so ridiculous, so unworthy of the people aspiring to lead our nation, it takes your breath away. Hillary Clinton has decided to line up with John McCain in pushing to suspend the federal excise tax on gasoline, 18.4 cents a gallon, for this summer's travel season. This is not an energy policy. This is money laundering: we borrow money from China and ship it to Saudi Arabia and take a little cut for ourselves as it goes through our gas tanks. What a way to build our country.

Here are the Washington Post, Robert Reich, and the Los Angeles Times. Here are Grist and Vanity Fair. Here's Newsweek, maybe the best of the bunch.

At worst, the gax tax holiday pads the pockets of the oil industry (McCain's version). At best, it accomplishes nothing at all (Clinton's version). So why propose it? Because voters are struggling with gas prices and by suggesting we chop 18 cents off the price of every gallon, a candidate sounds like a populist champion. But it's nonsense and a pander and the candidates know it.

Hillary Clinton has TV ads up in Indiana and North Carolina that attack Barack Obama for saying no to the idea. Awesome.

Comments

Hillary Clinton - John McCain Lite

Posted by: Elydog on 04/30/08 at 10:33 AM Respond

So one must ask Mr Obama which is worse; Pandering to voters telling them your going to reduce their pain at the pump, or Pandering to voters, getting elected to the Senate by telling them you're going to end an illegal, ill-concieved, immoral, and unjust war, then go on to hold out for four years doing nothing, and then giving the same promise in an attempt to new-politic a path to the Presidency?

Posted by: mitrebox on 04/30/08 at 10:54 AM Respond

That's ridiculous, Mitre. Compared to the other candidates, Obama is by far the most anti-war and to suggest anything to the contrary is disingenuous.

To respond to your rhetorical question, what's worse is Hillary pandering to voters on both occasions. She voted for the war because it was popular and supports the "gas tax holiday" because it's popular.

In fact, she followed John McCain's lead in this rather obvious troll for votes.

Obama hasn't pandered to voters on either front. He came out against the war in 2002 and has been consistent since. He obviously opposes the "gas tax holiday" as well.

It seems you would like to get out of Iraq. That's a fair bit of contention with all three candidates, but it's pretty unfair to hang your disappointment on solely Obama's rack. Hillary and McCain are members of the same body.

Posted by: BCM on 04/30/08 at 1:04 PM Respond

Everyone I've spoken with understands this. Remove the tax and the price will just continue to rise. Then when the "holiday" ends and the tax is reinstated the price just takes a sudden, big jump.

But Obama is the one who's "out of touch". I wonder when was the last time that McCain of Clinton had to pump a tank of gas, or reach into their wallet to pay for one? Not that the cost of a tank of gas would have any impact on *their* budgets!

Posted by: DaveD on 05/01/08 at 5:00 AM Respond

We're talking about a very temporary measure. I think the idea is for consumers to "catch their breath" and diversify their spending on a real short-term basis.

On a long-term basis, we've got to re-think transportation. A stateswoman here in France named Corinne Lepage also spoke about the problem of fuel from renewable (vegetal) sources and how the transportation of the world's wealthy is being progressively pitted against the HUNGER of the world's poor. The American presidential debate hasn't gotten there just yet.

Posted by: Kathy Giannini on 05/01/08 at 7:26 AM Respond