Tuesday, April 15, 2008

McCain's Gas Tax Holiday Proposal - Bad Idea

John McCain has said in the past that economics is not his strong suit. His "gas tax holiday" proposal clearly illustrates that.

The proposal is to eliminate the 18 cent a gallon federal gas tax from Memorial Day through Labor day. If you drive an average of 200 miles per week and get 20mpg, that's $1.80/week. Given the state of our infrastructure, dipping into this revenue stream for a purely political gesture is a terrible idea.

Even if $1.80 per week per driver were enough to stimulate the economy or bring great relief to anyone, wouldn't it then be equally harmful and painful when it's reinstated in September?

Gas prices are high because the oil producers have come to realize they had a lot more price flexibility than they thought. The price has quintupled, yet demand remains strong. There's no supply problem, you just have no alternative at the moment. Temporarily eliminating the gas tax isn't going to change the market dynamics in any meaningful way.

The good news is the problem is self correcting. Every penny gas goes higher makes alternatives more and more viable. When fuel sources start competing with each other on the scale of crude, things will really get interesting.

Can I interest you in some tulip bulbs? Beany Babies maybe? Pokemon cards?

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