McCain and the Illogic of the Gas Tax Holiday

It’s not often that you see an issue on which an entire field worth of experts agree. It is reasonable to say though that if a world leader does come across such an issue, he or she ought to listen to the experts. Unfortunately, this presidential race has proven that certain candidates will willfully fly in the face of centuries of academic research in the interest of staging a political campaign. In this case, I am referring to the proposals involving a “gas tax holiday”.

Hillary Clinton had a proposal for a gas tax, a campaign gimmic that apparently didn’t fool Indiana voters.1 Yet even after this, McCain’s campaign still clings to this smoke-and-mirrors strategy, and he brought it up completely unprompted in an interview this week with George Stephanopoulos:

MCCAIN: There are many steps that can be taken absolutely, including the gas tax holiday. Everybody — everybody…
STEPHANOPOULOS: Not a single economist in the country said it’d work.
MCCAIN: Yes. And there’s no economist in the country that knows very well the low-income American who drives the furthest, in the oldest automobile, that sometimes can’t even afford to go to work.
STEPHANOPOULOS: But they all say that that’s…
MCCAIN: And they haven’t met…
STEPHANOPOULOS: … not who’s (ph) going to get the benefit. The oil companies, the gas companies are going to absorb…
MCCAIN: You know, they..
STEPHANOPOULOS: … any reduction.
MCCAIN: … they say that. But one, it didn’t happen before, and two, we wouldn’t let it happen. We wouldn’t let it — Americans wouldn’t let them absorb that.
STEPHANOPOULOS: How would you prevent that?
MCCAIN: We would make them shamed into it. We, of course, know how to — American public opinion. And we would penalize them, if necessary. But they wouldn’t. They would pass it on.”

Whereas the Clinton plan would have at least been a funded waste of effort, McCain plans on making this and many other unfunded tax cuts and still balancing the budget. McCain–because he is either naive or lying–claims that all of the savings would be passed on to consumers because of “shame” and magic. Of course, any economist can tell you that the incidence of tax would only fall entirely on gas consumers if demand were wholly inelastic, which this year’s rapid demand destruction disproves. McCain’s gas tax holiday would go largely towards lining the prockets of oil refining and of the OPEC nations, ironic considering his call to stop the “drain” of importing foriegn oil.

Essentially, McCain’s suspension of the gas tax would have the same effect as a per-unit subsidy of fuel, relative to the status quo. The gas tax is already part of the government budget, and part of consumer behavior so suspending would do to behavior the same thing as the per-unit subsidy system that we have condemned in India, Mexico, and other developing nations. McCain claims that he is doing this out of compassion for regular Americans, and that economists are simply out of touch. If McCain actually cared about real Americans, he would simply treat the inequality that makes people unable to afford gas, rather than encouraging more oil consumption and more pollution, with his manipulative political ploys.

For a self-described conservative, McCain has a decidedly paternalistic attitude about offsetting rising fuel costs. Instead of just helping out the neediest people, with money that they can spend on things like food, more efficient vehicles, public transit, he would rather just help out those who buy more gasoline. When defending her gas tax holiday proposal, Hillary Clinton said that she’d rather not put her lot in with economists.2 Apparently McCain feels the same way, and in that case, economists will just as soon not put their lot in with McCain. Kudos to Mr. Barack Obama for being the only one of the final three to get this issue right.


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