Both McCain (GOP) and Clinton (Dem) have called for a temporary suspension of the federal gas tax – or a gas tax holiday – for the summer in response to higher gas prices. Obama has so far not endorsed such a move.
There is currently a 18.4 cent federal tax imposed on each gallon of gasoline purchased – in addition to any state taxes. Eliminating the tax would be a relief for taxpayers, according to the candidates. But experts are warning that a tax holiday could actually push prices higher.
It’s true that the hit at the gas tanks would be less if a gas tax holiday were imposed. But what result otherwise?
For one, federal tax revenues would decline, leaving a funding gap of about $10 billion. The revenues from gas taxes are traditionally used for highway projects and repairs. Suspending those projects would put folks out of work for the summer at a time when jobs are hard to come by.
Additionally, the gas tax holiday may increase demand and push up prices. Who wins in that case? Exxon and big oil, not taxpayers. In fact, experts claim that reducing demand is one of the best ways to lower gas prices.
Each of the candidates in support of the gas tax holiday has indicated that lost tax revenues would be taken from other sources – Clinton suggests the money would come from taxing Big Oil (a proposal that has already failed to pass Congress) and McCain has indicated that the revenues would come from the general fund. That same fund has already been raided for tax rebates.
At the end of the day, suspending the gas tax is akin to robbing Peter to pay Paul. Not such a smart policy move. But apparently, according to focus groups in both political parties, it will garner votes… Has it gotten yours?