Monday, April 28, 2008

The Gas Holiday? Another silly idea!

It sounds like a great plan. With the high cost of gas, let's roll back the federal gas tax for everyone over the summer to give drivers a break during the busiest travel season. McCain first proposed this plan and suggests that "Hard-working American families are suffering from higher gasoline prices. John McCain calls on Congress to suspend the 18.4 cent federal gas tax and 24.4 cent diesel tax from Memorial Day to Labor Day." After Obama came out against the plan, Hillary Clinton NOW supports it.

This is another example of silly election year politics. On the surface, it (maybe) seems like a reasonable way to give Americans a break. But, with some scrutiny, I believe it is a failed plan.


First, lets look at the math. The rollback in the tax will last about 14 weeks. In 2001 the average American traveled about 14,500 miles a year in a vehicle. Lets bump that to 20,000 for increases since then and to make the math easier. The average new car in the US gets about 25 miles to the gallon. I think we can all agree that the folks most likely to benefit from a reduction in the gas tax may drive older cars that get less mileage. Then again, those driving Hummer's help drag down the overall average. But, just to be conservative and to again used round numbers, let's assume the average car gets 20 miles per gallon.

If we work out the numbers this amounts to about 1000 gallons of gas per year. Now, if we multiply that by the federal tax, the average American would save $184. Ah, but wait. This program would only run for 14 weeks, not an entire year. That means the average savings to the typical American would be just about $50 over the summer.

All of this, of course, is based on same pretty conservative assumptions. I would argue that those needing help the most because of increased costs (food is up as well you know) are really feeling it in the supermarket. On top of that, many of the most needy don't have cars (thus get no help with this plan), only drive for work (thus far under the typical average miles driven), may rely mostly on public transportation (again, get no help), or can find other ways to reduce fuel related costs (like car pooling).

But there's an even bigger problem with this tax rollback. It is a tax holiday for ALL Americans regardless of income, regardless of the purpose of a trip, and regardless if you are driving a Hummer H2 when you could probably get by with something more efficient. Why should someone who drives and can afford a Hummer get the same break as the average Joe who is just trying to get by?

On top of that, reducing the cost of gas will likely increase demand. Increasing demand will likely tighten supply. Tightening the supply will cause the price to increase somewhat thus taking back some of the $50 in tax benefits and giving them to big oil.

Finally, doing this also will cost the US treasury about $10billion dollars in money that is badly needed to maintain our highway system (remember that bridge that collapsed?).

Americans are suffering due to high costs. But, a 14-week band-aid that will save, at best, a typical American about $50 is not the way to fix this problem. The way to fix this problem is to address the root cause: we have to increase minimum efficiency for automobiles, we have to find alternative sources, we have to find ways to stabilize the regions where oil comes from, and we have to find ways to strengthen the dollar (because oil is priced world wide in dollars and the dollar has lost a great deal of value in recent months).

Now, if we want to help out Americans that are hurting, let's focus a plan on them. How about a tax credit for the those with the lowest incomes? Obama has proposed such a plan. How about a rebate on the gas tax for the first 500 gallons you buy each year rather than every single gallon? Or maybe a tax credit for gas for those under a certain income level?

There's hundreds of ways to address this issue, but a blanket rebate for every gallon of gas sold is the wrong way to go. It is nothing more than pandering for votes while ignoring the real issues. Once again Obama shows that he is the only candidate willing to speak the truth to voters rather than pander for votes!
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