What a gas-tax holiday won't do

Suspending the gas tax is essentially a political gimmick that’s bad on the economic merits and probably won’t yield much in the way of political benefit anyway, in part because everyone knows it’s a gimmick. (Nancy Pelosi called the idea “very showbiz” when it was floated earlier this year.) It’s not a disastrous proposal, because the federal gas tax is so small, relatively speaking, that suspending it isn’t going to make a huge difference either way. But it’s a proposal that will cause more problems than it’ll solve.

Advertisement

That’s true even if the gas-tax cut gets largely passed along to consumers. That’s not guaranteed: Refiners and gas-station owners could end up pocketing a big chunk of the savings. But a recent study by economists at the Wharton School at the University of Pennsylvania of gas-tax holidays in Maryland, Connecticut, and Georgia found that on average, about 70 percent of the tax cuts got passed along to consumers. Yet even if you assume the same will be true of a federal gas-tax holiday, that means consumers will save about 13 cents a gallon, which for the average car owner will add up to a grand total of about $20 over three months. That’s not nothing, but it’s a very small benefit, small enough that it’s not even clear consumers will really notice the savings or attribute any drop in the price of gas to the tax holiday. (Gas prices, after all, have dropped more than 13 cents in just the past week.)

And in exchange for that, what will we give up? To begin with, because the gas tax is a dedicated tax that funds highway spending, it’ll take an estimated $10 billion from infrastructure projects (which are one of the things it actually makes sense for the government to be spending money on right now). Congress would presumably appropriate money to make up the difference, but in effect we’d be adding $10 billion to the deficit at a time when inflation is above 8 percent.

Advertisement

Join the conversation as a VIP Member

Trending on HotAir Videos

Sponsored

Advertisement
Advertisement
Advertisement