The Gas Tax Holiday; don’t fall for it.

by Paul Michael on 6 May 2008 18 comments

Both John McCain and Hillary Clinton are proposing a new Gas Tax Holiday that will run during the summer months, bringing “much needed relief” at the pumps. But will it? More than 200 economists, including four Nobel prize-winners, have already signed a letter rejecting the proposal.

The Gas Tax Holiday is yet another way politicians pander to the public, with an idea that on the surface sounds like a money-saver , but after a few seconds of consideration is actually pointless. It’s just a cheap way to buy your vote. It's an illusion.

The federal gas tax is 18.4 cents per gallon. Suspending the gas tax over the summer would save the average American around $30, according to Congressional Budget Office. That’s roughly 33 cents per day.

To me, that’s not a whole lot of cash. To people who are on the poverty line, it is. So I don’t want to dismiss it straight away. For a smart shopper, that’s enough to buy plenty of groceries. But we can’t just take it as read that people will see one cent of that money.

Fuzzy math
One of the main reasons economists are up in arms about the tax cut is that the knock-on effect has not been accounted for. Basic physics states that for every reaction, there is an equal and opposite reaction. So, if we cut the gas tax and prices go down, what happens; demand increases. Maybe not by much, on a 13-gallon tank you’re saving enough to buy a loaf of bread. But the illusion of savings will be enough to ‘drive’ more people to the pumps. And when demand increases, so does the price of gasoline. It happens every year.

So, it’s highly feasible that if/when the gas tax is eliminated, the price of a gallon of gas will remain the same or actually increase. And it’s those mega-rich oil companies that will reap the rewards. Oil companies that already report record-breaking profits and still receive grants and tax breaks from the government.

Furthermore, what happens to all the services that would have been paid for by the gas tax? Which roads will not get repaired? Which bridges will be allowed to stay in a state of disrepair? Oh wait…don’t tell me…our government will borrow the money, thus weakening our already dying economy even further. Or they’ll just let the infrastructure crumble.

I’m no economist, anyone will tell you that. But I don’t have to be. I have over 200 esteemed economists backing the argument and I for one don’t intend to stay quiet about it. Enough is enough Washington. Republican or Democrat, we need to make a stand and let them know we’re smarter than that, and they can’t buy our vote.

There is currently a petition out on the web asking for your signature. Here’s an excerpt from the petition:

Eliminating the federal gas tax all summer would only save American consumers about 30 dollars, send more money overseas, reduce our ability to invest in infrastructure, and encourage even more driving and pollution contributing to global climate change. At the end of the summer, gas prices would be as high or higher than before and no problems will be solved.

The only way to save Americans from spending huge sums on gas is to reduce the gas Americans use. We need to invest in alternative sources of energy. We need to build more fuel-efficient cars. And we need to make it easier for more Americans to accomplish everyday tasks without having to drive.

 

 

 

I have signed it. Over 1460 other people have signed it, too. You can find it here , and if we all get behind it maybe we can stop this insanity from happening. As Gandhi once said, “you must be the change you wish to see in the world.”

http://www.gastaxscam.com/letter.html
http://blog.wired.com/cars/2008/04/gas-tax-holiday.html
http://www.bloomberg.com/apps/news?pid=20601087&sid=aTzCmqCNyLho&refer=home
http://www.boston.com/business/ticker/2008/05/mit_prof_a_gas.html
http://firstread.msnbc.msn.com/archive/2008/04/29/958462.aspx

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Xin Lu's picture
Xin Lu

I think Barak is actually sensible on this issue.  He said what you said and pointed out that gas companies will probably just raise the price to eliminate the tax savings. Anyway, all of these stupid stunts for the election are getting kind of annoying. 

Guest's picture
FrugalZen

Originally when the Gas Tax was introduced it was supposed to go into a Trust Fund for the purpose of Building and Maintaining the Interstate Highways System AND was supposed to grow to a point that the cost of maintaining the roads would be covered by the Trust Fund earnings....in other words eventually become self-sustaining.

Social Security was SUPPOSED to be the same way but our Dear Polititians did to the Highway Trust Fund the exact same thing they did to the Social Security Trust Fund....LOOTED it to balance the budget and pay for their pet projects replacing the money with IOU's.

Suspending the Gas Tax means NOTHING...the lost revenue will just have to be made up in a larger appropriation bill and higher taxes next year...something along the line of "Shrubs" $600 Stimulus Check...Rob Peter To Pay Paul.

~ Roland

Guest's picture
wildgift

Some people are saying that prices are rising because of excessive speculation in oil and fuel. I'm not sure how that happens, but, there definitely has been a surge in investing in fuel.

Guest's picture
Guest

I could care less. You are ill informed. Call me discuss please 818-846-6266.

Guest's picture
Jul

I'm very disappointed in Hillary for supporting this ridiculous proposal.

Guest's picture
Guest

Just a note on the online petition. These have absolutely no credibility with any governmental body and are mostly discarded. To be valid, a petition must be hand-signed with the signer's signature, and must include a legitimate home address. Most entities want to be able to check that the signer is over 18 and/or a registered voter in their district. Don't waste your time distributing this silly document.

Guest's picture
Amy

I'm impressed that Barack has stood his ground on this issue, even though it may cost him some votes.

However, I do find it sad that politics is at a point where we feel the need to give credit for something as basic as standing up for what you think is right.

Guest's picture
Amy

regarding the petition: though it may not be "valid," it still gets the message across that the gas tax holiday is bad and maybe we should think further about its implications

Guest's picture

I agree with guest about signing the petition they do not work. I also read in the Investor Business Daily editorial that this proposal would save consmuners billions of dollars.

Guest's picture
Brad

Thanks for helping to get the word out about this. The candidates pushing this proposal are pandering to venal greed and hoping nobody will think too deeply about it - not that you even have to think that deeply to see what a sorry idea this is.

And of course, let's not forget to contact our Congresscritters directly when this comes to a vote.

Cheers.

Guest's picture
Mark

I don't think it is worth it. Keep the money and spend it on the roads and bridges like you should. That little bit of money that I would save over the summer isn't going to change my standard of living. Barrack is coming down on the right side of something for a change.

Guest's picture
Kelja

Something that the men who fought the American Revolution knew was that taxation robs liberty.

I agree giving a Gas Tax holiday is meaningless to the average American. But anytime a tax is reduced it is a good thing and people should celebrate. It happens so rarely.

I am constantly amazed at the common man's and woman's absolute trust in government. How easily they accept being told what and when to do something. I don't trust government and certainly don't trust they know better than I do how to spend my money!

I look around and all I see is milch cows.

Guest's picture
Guest

Absolutely! Well said.

If anything, it should be a permanent holiday.

Guest's picture
Laura

But not because "the gas companies will raise the price."

Demand will go up when the price goes down. There won't be enough gas to fulfill that demand, so the price will go back up until supply and demand are in equilibrium.

9th grade economics, people.

Guest's picture
Guest

But, ever little bit counts! They are offering this out of the goodness of their heart, who are you to kick that in the face. Will nobody think of the children!!!

Guest's picture
Jason

There are I believe three states, including Nevada where I live, who have it written in their statutes that the state gas tax will rise to cover any drop in the federal gas tax to cover any missed revenue. so the residents of these states will receive no benefit, no matter how small.

I also think it's funny to hear the politicians complain about the price of gas when they have it in their power to allow more drilling to occur and refineries to be built, but they will not allow it.

Guest's picture
Ken

The reduction sounds great in principle, but what if the tax is lifted, and tomorrow morning there is some kind of 'barge fire' or it's Bring Your Child to Work Day at the Refinery (anything to create a 'slowdown' in production.) And gas prices go up 18 cents?

What the hell would McCain do? It would essentially take about $9 billion out of the tax cofers and put that money directly into the oil companies hands. And the American consumer gains nothing!

Is big oil that brazen? It would take some guts to do it, but with the media behind them covering every supply scare from refinery fires to the payroll girl getting a hang nail at Exxon, it's possible.

Guest's picture
Eliot

I can understand the pain that people are going through but eliminating the tax is not the right answer. It encourages more consumption, reduces much infrastructure revenue, and hurts the trade deficit and when you factor that is saves an average American $30 it seems really silly.

I feel that increasing the gas tax and using those dollars to spur renewable energy is much preferred. But I think everyone realizes that is is political suicide.