McCain Floats (Not Very Good) New Tax Ideas

April 15, 2008

Republican presidential candidate John McCain has released some new suggestions for tax policy, including a temporary “repeal” of the federal gasoline tax from Memorial Day to Labor Day. Other highlights courtesy of the Associated Press included an increase of the personal exemption for dependents from $3,500 to $7,000, as well as an optional flat tax.

If the purpose of the federal gasoline tax is to serve as a user-fee for transportation services, then any temporary repeal is bad tax policy. If the federal gasoline tax is just used to raise general revenue for the government, then it shouldn’t really be there at all or should merely serve as some Pigouvian tax for pollution or congestion purposes. Either way, a temporary repeal has little justification, and whether or not it would even lower the price by the full amount of the tax in such a short time period is unclear.

With regards to increasing the personal exemption for dependents, the obvious question is How much is enough? How much should we be giving people to have children? They already get a $1,000 tax credit per child (up to 17) and a $3,500 deduction. Furthermore, there are credits for child care, education, and EITC that increase as the number of children increase. Maybe we should just write a $10,000 check to each family per child that it has. Or how about $20,000? Maybe even $100,000. McCain and others who constantly argue that the tax code needs to be “pro-family” need to justify what amount of subsidization is correct, just like the nannies need to justify why a given tax rate on alcohol, cigarettes, candy bars, etc. is justified.

With regards to an optional flat tax, there are few details that have emerged, but typically, they serve just as a tax cut. Optional tax systems have benefits, but they also increase complexity.

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