Would a Gas Tax Holiday Help… or Hurt?

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?

Comments

  1. Micheline

    Why can’t the federal government do with less tax money? Why can’t they tighten their belts like I have to when gas prices increase? The solution is less taxes. Starve the beast!

  2. Maddy

    I agree with Senator Obama that it is just a temporary “band-aid” – however, I don’t see the solution to gas prices as being more taxes to the gas companies –

    We need “real” lower prices created by lower demand and increased availability.

  3. Wayne PHILLIPS

    I do not support a gas tax holiday!! When are the politicians, and hence the voters who elect them, going to understand, independence from oil and conservation of energy is a major way we can start to manage this issue. I am sure other solutions exist, but economic incentives based around the commodity of oil, either for consumer or suppliers, only drags out the eventual reckoning.
    Bush is looking out for his oil buddies by insisting the opening up more lands in ALASKA. Some critics of this point out, if they started today, the first oil to refineries would be ten years away. So the powers that “decide”, led by the “Decider” believe a commodity coming on-line in ten years will drive prices down today, or even ten years from now? World demand is climbing, so to get access to the ALASKA oil, or even off-shore drilling, just offers the giant oil companies access to further reap high profits, now and into the future. It is a poor state of affairs when American companies holds the country “hostage” with a commodity such as oil. $40,000,000,000 profit. That’s more than many of the world’s countries budgets, especially those that struggle for their populations. With food prices rising, food production will be next, and it will be a world wide problem.
    My collegue has a viable solution. Make all purchases of gas, cash only. Until the American people have to face the fact at the pump of shelling out real money, and not put it on a credit card to pay later, the hurt will not be apparent. Rising personal debt contributes to false sense of the economy going on forever.
    Ever really think about the housing crisis, who it really effects? An advertisement on TV capped it for me. We need to stop the decline in the value of housing, “so people can get the value out of it to finance future purchases”. Previous generations only got the value out of their homes when they were sold. Today, home equity loans, pull every dollar they can, and most goes to finance current personal debt, vacations, and “wants”.
    As a parent, I maybe did a lousy job in raising my three. I tried to raise their standard of living as the best we could do, thereby creating a sense of entitlement when they became adults. Work, and the wealth created by it, does not create infinite wealth and access to money. Savings, and not living beyond one’s means, is a lesson in life finances, apparently that I alone did not do for the current 20-30’s generation.
    Phillipsland had an investment program. Money was put aside for the serious “wants” later. No weekly allowances. But if an activity was desired, we saw to it arrangements were made for that child to attend. But my sons mowed lawns for their money, as well as help the neighbors. My daughter also worked at a local shoppe that did all kinds of things, printing, UPS shipments, local Chamber of Commerce, etc. They had access to money, but they determined by their used it of how to spend appropriately. When they paid for the gas, they didn’t travel as far. They had to have cash money in their pocket.

  4. Kelly

    Micheline,
    The problem with less revenue is that there is no plan – you’re right that the government should do things differently… For example, that project on I-95 through VA, it’s been how long? Can you say highway pork?
    But our politicians don’t think that way. They won’t cut spending. They will shift spending. And that will hurt taxpayers.

  5. Kelly

    Maddy,
    I don’t think that Clinton’s plan was to “increase” taxes to oil companies but rather to remove the extra tax breaks granted by the current administration.

  6. Kelly

    Maddy,
    That said, I think you’re right on the money re less demand.
    This idea that we will have affordable oil forever is what got us into this mess to begin with…

  7. Kelly

    And Dad, none of us kids had a sense of entitlement regarding money – to the contrary. We all had jobs, no allowances, no shopping sprees.

    I think that growing up means having to learn things ourselves. And the boys and I did that differently. But it certainly wasn’t lack of direction from our parents – I still remember that old calculator Mom used on grocery shopping trips… ;)

  8. Jennifer Hofmann

    $0.18 off per gallon sounds good – until people start buying more of it because of the slightly decreased price. This will jack the price up even higher, just compounding the problem we already have: too high a demand and not enough product.

    If the tax holiday provides any relief at all, it will be short-lived. We do need to pay for highway infrastructure (which is what the gas-tax pays for), but I agree with the comments so far that say that real, long-term solutions for affordable fuel and sustainability are best.

    In the meantime, cutting fuel use as much as possible will help bring prices down. Personal accountability is critical (and boy, ain’t that an old fashioned value?).

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  10. Wiley C. Post

    1.The only solution to this problem is GAS RASHIONING! Americans of today do not know how to conserve. They have been taught since birth on how to consume at any cost.
    2.Enforce the laws on BIG OIL not to slow production in the refineries. Keep or even more up the percentage to 90% or more, not with fines but JAIL TIME for the CEO’s whose companies do not abide.
    3.Ask our leaders why it is against the law to import sugar cane from Brazil to make E85? Why do we need to use ALL of our corn?
    Americans must wake up and take back the control on how this country is run. Bush and his cronies have slowly turned this country over to the greedy corporations that want to live off the small people that will not take a stand.
    Remember VOTE!! Let them know YOU want to be heard!!!!!

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  12. Matty

    Wake up people, Exxon and Chevron are making a fraction of what our foreign suppliers are, Saudi Arabia, Nigeria, Venezuela, Mexico, Iraq, Canada, Russia, etc. Why do you think the US dollar is falling like a rock? It’s because money is flying out of this country into these other countries at the rate of over a billion dollars a day! There are no short term fixes left, only hard decisions and adaptation to the will of reality. $8/gallon is already a reality in many European nations…..we need to lower gasoline demand any way possible as soon as we can!

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