McCain's Proposed Federal Gasoline Tax Holiday is Bad Public Policy

Republican Presidential candidate John McCain this week proposed a Federal gasoline tax holiday to boost the economy. In a press release announcing this and other proposals, McCain pledged to call upon Congress to suspend the 18.4 cent per gallon Federal gasoline tax and the 24.4 cent per gallon diesel tax from Memorial Day to Labor Day this summer. The stated rationale for his proposal is to ease the pain of high gas prices, helping American consumers to cope with higher living costs.

Is McCain's proposed Federal gas tax holiday a sensible plan for the United States Congress to adopt? The best evidence seems to suggest that the answer is no, McCain's proposed Federal gas tax holiday is bad public policy.

Will a Federal Gasoline Tax Holiday Result in Lower Prices at the Pump?

The McCain Federal gasoline tax holiday proposal implicitly assumes that the temporary suspension of the Federal gasoline tax will result in lower prices at the pump. This is not necessarily the case. With gasoline prices moving ever upward, any temporary suspension of the Federal gasoline tax may well be offset by rising gasoline prices. With no price controls limiting the prices oil companies charge consumers, oil companies may well take advantage of a suspension of the Federal gasoline tax to increase pump prices more than they would otherwise; thus, it may be big oil companies and not consumers who would most benefit from McCain's Federal gasoline tax holiday.

Is a Federal Gasoline Tax Holiday Necessary to Curb the Pain of High Gasoline Prices?

The pain of high gasoline prices in the United States is linked to overconsumption of gasoline. To curb that pain, Americans need only to reduce their reliance on private automobile use. An amazing 25% of all automobile trips in the United States are less than 1 mile, while 40% are two miles or less. Americans already have the tools they need to reduce the pain of high gasoline costs- walking and using public transportation for short distance trips.