For months now, political analysts and strategists have been arguing that John McCain needed a more developed economic program to match the extensive policy prescriptions he's outlined on Iraq and other national security issues. As the economy has increasingly moved front and center in the election, that difference has become even more glaring. Until recently, McCain's economic program consisted largely of a call to extend the Bush tax cuts.
On Apr. 15, McCain took a big leap forward in doing that. In a broad-ranging economic speech in Pittsburgh, he called for several highly targeted tax cuts and federal spending initiatives. Included were a summer gas-tax holiday that would suspend the 18.4¢ federal gas tax and 24.4¢ diesel tax, and a doubling of the personal tax exemption for dependents, from $3,500 to $7,000.
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To help consumers weather the downturn immediately, McCain urged Congress to institute a "gas-tax holiday" from Memorial Day to Labor Day. His proposal came on a day when oil prices hit an all-time high, rising past $113 per barrel.
Mr. Populist McCain is at it again, trying to ride this wave of American anger and concern over the U.S. economy, while hoping to court a few votes for the presidential election. And what is a better way to court a few votes, than to propose a "gas tax holiday" for those same American voters who are feeling the pain at the gas pump? There is just one problem for Senator McCain's populist gas tax holiday--it is an economic disaster. From The New York Times:
On the face of it, John McCain’s proposal to offer a gasoline tax “holiday” during the summer driving season might sound like a good way to cut gas prices at the busiest time of the year.
But economists and energy analysts say it would have little impact on mitigating the rise in gasoline prices. In fact, it could lead to the opposite result.
The federal gasoline tax represents a flat fee of 18.4 cents a gallon nationwide. With gasoline currently averaging $3.39 a gallon, the tax represents a mere 5 percent of today’s pump price. While that’s not trivial, consider that gasoline prices have more than doubled since 2004.
The problem is that lowering gasoline prices at the pump would encourage more consumption. So in the long run, it would push prices up.
The timing of the proposal matters. Senator McCain called on Congress to suspend the gas tax from Memorial Day until Labor Day. That’s typically the period of highest gasoline use in the country as Americans drive to their holiday destinations.
“You don’t want to stimulate consumption,” said Lawrence Goldstein, an economist at the Energy Policy Research Foundation. “The signal you want to send is the opposite one. Politicians should say that conservation is where people’s mindset ought to be.”
So McCain's gas tax holiday reduces the price on gasoline during the peak summer driving season. The slightly reduced gas prices could cause Americans to take more summer driving trips, thus consuming more gasoline. This increases the demand for gas. The gas suppliers--the big oil companies and energy refiners--will probably be cutting back on the supply of gas, citing the need for switching over from their winter formula gas to a summer formula gas. Gas prices will continue to go up. And as gas prices increase, so do the profits of Big Oil.
There is another problem with McCain's gas tax holiday. According to The Wall Street Journal, the federal gas tax "raises money to repair and expand the highway system." A white paper that was circulated on Capital Hill by the U.S. Department of Transportation reported that every $1 billion of federal investment in the highway system supported 34, 779 jobs. So the McCain gas tax holiday would not only increase the price of gas during the summer, but also decrease the number of highway construction and repair jobs due to federal budget cuts on highway spending. And let us not forget that all that increased consumption of gas will also mean an increase in carbon dioxide levels from auto emissions, thus increasing the amount of global warming on the environment.
Just as McCain has played election-year politics by railing against "greedy" Wall Street investors, he is, again, playing election-year politics with this "gas tax holiday." It is another gimmick to shift McCain's image as that of a "populist" presidential candidate by presenting a simplified political solution to a complex problem. This is nothing more than an attempt by the McCain campaign gather votes.
The question I would now have to ask--is the American public actually foolish enough to buy into this latest McCain scam?
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