Sens. John McCain (R-Ariz.) and Hillary Clinton (D-N.Y.) want the federal gas tax of 18.4 cents per gallon suspended this summer. Sen. Barack Obama (D-Ill.) does not. This was the biggest issue in the May 6 Indiana and North Carolina Democratic primaries, and, as far as actual policy goes, it is a rare disagreement.
Pretty much every economist or person who has seriously looked at the idea thinks that a gas-tax holiday makes no sense. But the former first lady says that she is "not going to put [her] lot in with economists."
Experts are really overrated. Of course, there is no chance of a real gas-tax holiday in 2008. President Bush and congressional leaders have made it clear that this idea isn't going anywhere.
Taxes should not have "holidays." They shouldn't be lowered temporarily in order to score political points. The tax code is complicated enough. Every time it is changed, more forms are created, and life becomes more difficult for small business owners and self-employed folks. Washington needs to follow Wal-Mart's lead: low taxes, always. Or, if you really want to give the government more of your money, higher taxes, always. What is important is that taxes remain simple and constant.
As Obama was constantly reminding residents of Indiana and North Carolina, the gas-tax holiday would only save the average driver around $28. With that money, you could get some Pizza Days socks or see "Ironman" - not much "relief" if you are up to your eyeballs in debt, don't have health insurance or are late on your mortgage. Even for a political gimmick, this is a low payout. The tax rebates that are being mailed out in the next few weeks start at $300. These were also panned by economists as a meaningless gesture that will do little to get the economy out of a recession. The problem is that people won't spend more - they'll borrow less.
The gas-tax holiday is a bad idea, and I'm glad Obama has pointed that out. However, criticizing a $28 per person tax cut isn't a new kind of politics. The Senator from Illinois has tried to use the gas-tax holiday to demonstrate what is "wrong with Washington." Quick political fixes are easy to oppose when, worse case scenario, you are denying the voters half a tank of gas. It would be nice if the presumptive Democratic nominee had called the tax rebate what it was: a campaign bullet point meant to get congressmen elected.
Clinton wants to pay for the gas tax cut by raising taxes on oil companies' profits. ExxonMobil made $10.7 billion in profits. They are not alone; the energy industry is a profitable one. Energy companies' margins are modest, though; Exxon's profit margin was just over 10 percent, and British Petroleum's margin was just under 8 percent. Those profits are reinvested to find more energy and bring it to consumers, increasing supply and lowering prices. Clinton's windfall profit tax will result in higher prices in the future because there will be less gas to go around.
It's unfortunate enough that smart politicians like Clinton pretend that a temporary repeal of the gas tax will make a real impact in gas prices. What's worse are politicians supporting bad ideas, like trade barriers and windfall profit taxes, that significantly drive up prices for everyday Americans. No matter what the former first lady says, politicians should listen to economists.
Xander Zebrose is a sophomore majoring in economics. He can be reached at Alexander.Zebrose@tufts.edu.
