The gas tax battle continues

Hillary Clinton and Barack Obama sparred Tuesday over Clinton's -- and John McCain's -- support for a summer holiday from federal gas taxes.

Published April 30, 2008 12:09AM (EDT)

As the price of oil and gasoline creep ever higher, there's been an increase in chatter about the various solutions offered by the presidential candidates, especially the support from both John McCain and Hillary Clinton for a holiday from federal gas taxes this summer. Tuesday saw a ratcheting up of the rhetoric between Barack Obama and Clinton on the issue, and Clinton has now released an ad that will run in Indiana and North Carolina hitting Obama for his opposition to the idea. (Video of the ad, via Time's Mark Halperin, is at the bottom of this post.)

The federal gas tax currently stands at 18.4 cents a gallon -- 24.4 cents for diesel -- and the money collected from it goes into a highway trust fund that helps state and local governments pay for various road-related expenses.

The merits of the suspension proposal are, at best, debatable. First, McCain's formulation of the idea would increase the federal deficit, as he supports shifting other federal monies into the trust fund to make up for the difference. (Clinton's is supposed to be revenue neutral, as she's also calling for a windfall profits tax on oil companies to make up for the lost tax dollars.)

Then there's the question of what a gas tax holiday would actually accomplish. Princeton economics professor and New York Times columnist Paul Krugman (no cheerleader for Obama) weighed in with a blog post that the Obama campaign is now sending out to reporters. In the post, Krugman wrote:

John McCain has a really bad idea on gasoline, Hillary Clinton is emulating him (but with a twist that makes her plan pointless rather than evil), and Barack Obama, to his credit, says no.

Why doesn't cutting the gas tax this summer make sense? It's Econ 101 tax incidence theory: if the supply of a good is more or less unresponsive to the price, the price to consumers will always rise until the quantity demanded falls to match the quantity supplied. Cut taxes, and all that happens is that the pretax price rises by the same amount. The McCain gas tax plan is a giveaway to oil companies, disguised as a gift to consumers.

Is the supply of gasoline really fixed? For this coming summer, it is. Refineries normally run flat out in the summer, the season of peak driving. Any elasticity in the supply comes earlier in the year, when refiners decide how much to put in inventories. The McCain/Clinton gas tax proposal comes too late for that...

The Clinton twist is that she proposes paying for the revenue loss with an excess profits tax on oil companies. In one pocket, out the other.

Some experts even support an increase in the gas tax, arguing that prices should be going up to help fight global warming and reduce dependency on oil. In a recent interview with Salon, Christopher Knittel, professor of economics at the University of California at Davis, said, "The U.S. is just now starting to get on board with the idea that we need to fight climate change, and this is just reversing that fight. Basically we're going to reduce the price of gasoline, which means consumers are going to respond by either driving more in the short term or changing how they make vehicle purchases and buying less fuel-efficient cars, because fuel efficiency won't be as important."

Of course, political campaigns are rarely about the actual merits of policy proposals. (And, disturbingly, I noticed that in the coverage I read of the issue as I read this post, almost no one actually turned to experts to help sort out whether the holiday is a good idea -- that was largely left to a he-said, she-said debate between partisans.) And so, on Tuesday, Clinton and Obama took after each other, each accusing the other of a multitude of sins. During a tour of a furniture manufacturer in Indiana, Clinton said, "There are a lot of people in Indiana who would really benefit from a gas tax holiday. That may not mean much to my opponent, but it means a lot to people who are struggling here, people who commute long distances to work: farmers and truckers, who are in the business of driving a lot of vehicles over a lot of miles."

At a town hall meeting in North Carolina, Obama told the crowd, "This isn't an idea designed to get you through the summer, it's designed to get them through an election. The easiest thing in the world for a politician to do is to tell you what they think you want to hear. But if we're gonna solve our challenges right now, then we've gotta start telling the American people what they need to hear. Tell 'em the truth."

And in a statement e-mailed to reporters, Obama said, "the two Washington candidates in this race are playing the same old Washington game where you try to distract voters without doing anything to deliver meaningful relief for working families. As President, I'll pursue real change by providing a tax cut of up to $1000 for working families, and investing $150 billion in clean, affordable, renewable sources of energy to create millions of jobs and end our addiction to oil. It's time to stop dusting off tired Washington ideas like gas tax holidays and drilling for oil in the Arctic National Wildlife Refuge so that we can finally be honest about the challenges we face, bring this country together, and push back against the special interests that have blocked progress for decades."

The Clinton ad:

By Alex Koppelman

Alex Koppelman is a staff writer for Salon.

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2008 Elections Barack Obama Hillary Rodham Clinton John Mccain R-ariz.