Not that we’d mind if the federal gas tax were scrapped permanently, but a federal gas-tax holiday of the sort John McCain has proposed is unlikely to have much of an effect on gas prices this summer. Nor will the tax-rebate checks coming soon to a mailbox near you have the desired effect of jump-starting the sluggish economy. We understand the desire of politicians in both parties to do things that poll well. But with nobody looking at the big economic picture, we are running a real risk of drifting into a ’70s-style policy mix of high taxes, loose money, a weak dollar — and stagflation.
Suspending the 18.4-cents-per-gallon federal gas tax for the summer months will not provide much relief for drivers because oil supplies are expected to remain relatively tight over that period. The lower cost will only serve to drive up demand and send the price back to where it was. The issue is good politically for McCain, because Barack Obama was for a gas-tax holiday before he was against one: Back in the Illinois state senate, he backed such an idea, whereas now he claims it would deprive the government of badly needed highway-construction funds.
Nonsense. Revenues from the federal gas tax go into the U.S. Highway Trust Fund, which Congress draws upon to pay for some of its biggest pork boondoggles (the infamous Bridge to Nowhere would have drawn upon the fund). Responsibility for maintaining roads and highways ought to be returned to the states, and the federal gas tax done away with for good.
McCain’s call to stop filling the Strategic Petroleum Reserve makes more sense. Again, there is a strong case for going further. The costs of maintaining the reserve have far outweighed any economic or strategic benefit it has ever yielded. So why not dump the reserve on the market and shut it down? McCain should also be talking a lot about how federal ethanol policy drives up the prices of both food and fuel. Repealing the 2005 corn-ethanol mandate would lower food prices by reducing the demand for corn, and removing the 54-cents-per-gallon tariff on sugar-based ethanol would give gasoline-makers who use ethanol as an oxygenate access to a cheaper supply.
The tax rebates Congress and the Bush administration are speeding to our mailboxes are similar to McCain’s proposed gas-tax holiday in that they provide a brief sugar rush without solving underlying economic problems. Even if people spend their rebates, as the advocates of the policy hope, it will not end the credit crunch, the housing slump, or the business-investment freeze.
Back to the big picture nobody is looking at. The Fed has been cutting interest rates recklessly. Congress is poised to let taxes rise to pre-Bush levels — or even raise them higher. Our corporate tax rate is already higher than that of almost all developed countries. Instead of addressing any of these problems, our political class is, in its bipartisan way, growing addicted to quick fixes. Someone needs to show some leadership. Perhaps Senator McCain?