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McCain, Please Stop with the Gas Tax Holiday Talk

5 min readBy: Gerald Prante

This morning on ABC’s This Week with George Stephanopoulos, John McCain was interviewed by Stephanopoulos. And during a discussion on energy, McCain mentions his gas taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. holiday proposal again as a way to relieve consumers, and then Stephanopoulos steps in.

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.

Penalize them if necessary? Does John McCain know what that entails? Does he understand that such a policy is de facto price controls? Of course he doesn’t. That’s because he doesn’t know what he’s talking about on this issue.

It’s common for politicians (on both sides) to take shots at economists like McCain did in this interview, arguing that they are heartless and don’t understand the plight of hard-working Americans who don’t get to sit behind a desk all day. But that ridiculous argument is typically made when the individual fails to understand or want to accept what the economists are saying merely because it doesn’t suit their agenda. It’s a baseless argument designed to distract from the core question, which in this case is, Will the price at the pump fall significantly from a temporary reduction in the federal gas taxA gas tax is commonly used to describe the variety of taxes levied on gasoline at both the federal and state levels, to provide funds for highway repair and maintenance, as well as for other government infrastructure projects. These taxes are levied in a few ways, including per-gallon excise taxes, excise taxes imposed on wholesalers, and general sales taxes that apply to the purchase of gasoline. ? The answer is no.

A gas tax holiday is truly a gimmick—maybe worse than Obama’s worst gimmick, which is exempting all senior citizens making under $50,000 from paying income tax.

To be fair, there is nonsense with regard to the rhetoric on the energy tax policies of Obama as well. Obama has typically been clear that a windfall profits taxA windfall profits tax is a one-time surtax levied on a company or industry when economic conditions result in large and unexpected profits. Inheritance taxes and taxes levied on lottery winnings can also be considered windfall taxes on individual profits. would be imposed merely to raise revenue to give a rebate to low-income Americans. One Obama primary ad and others on the Democratic side of the aisle, however, have made outlandish claims with respect to a windfall profits tax. One such claim is that a windfall profits tax would lower the price at the pump. Such a claim buys into this myth that profits are merely transfers from higher prices to consumers to higher profits for companies. Also, almost every advocate of a windfall profits tax (including Sen. Obama) fails to acknowledge that people pay taxes. Obama often uses rhetoric about “going after the big oil companies” when in fact, any economist would tell you that this really means “shareholders of oil companies.” No politician ever wants to put a face on a tax increase.

Back to McCain’s interview. The question before the gas tax holiday was brought up, there was this exchange:

STEPHANOPOULOS: A majority of Americans think you’re going to come in. They look at your tax plans and say you’re going to be just like President Bush on the economy.

What would you do right now — spending aside — that would be different from what President Bush is doing?

MCCAIN: Well, I would give every family in America double their exemption for — on the child tax and children’s tax, a dependent tax break, from $3,500 to $7,000.

I would declare that we will scrub every agency of government and eliminate those that are not necessary.

I will veto every single pork barrel bill that comes across my desk, and make them famous.

I will promise that we will not only keep tax cuts low, but we will have some additional incentives for American investment and growth of jobs.

I will embark on an immediate, an immediate effort to eliminate our dependence on foreign oil — nuclear power, offshore drilling, wind, tide, solar — and stop this drain of $700 billion a year from the American economy. This administration — for 30 years, Congress and the administrations have not done anything on this energy crisis. Now, it’s hurting low-income Americans the most.

There are many steps that can be taken absolutely, including the gas tax holiday. Everybody — everybody… (Stephanopoulos interupts, see above)

So McCain brags about how he wants to reduce spending at the same time he tells us that he will double the personal exemption for dependents. Any public finance scholar would tell you that doubling the personal exemption is basically just like having a government agency write a check to every family in America based upon their income level and the number of children they have. There are already agencies that do just that (HHS, Food Stamps, etc.).

Combined with the gas tax holiday, the doubling of the personal exemption for dependents (phased in over next few years) is McCain’s worst tax policy proposal. And that’s funny, because these are the two that he cites the most in public.

(Note: This blog post has been updated to reflect a posting of the official transcript on ABC News’ website. The earlier version included a transcript that was typed using TIVO.)