It’s a Boondoggle: the Gas Tax Holiday

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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.

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