Monday, May 05, 2008

The Gas-Tax Holiday: A Gimmick Too Stupid to Die

You know it is truly the silliest of silly seasons when journalists get audibly excited (as WNYC’s Brian Lehrer did last week) because they get to take a break from covering Rev. Jeremiah Wright in order to cover what is being called an “actual issue.” I say the silliest of silly because that “issue” is the John McCain/Hillary Clinton proposal for a summertime federal gas-tax “holiday.”

In case you’ve been under a rock (or just too busy watching and re-watching youtubes of Rev. Wright), presumptive Republican presidential nominee John W. McCain proposed suspending the federal tax on a gallon of gasoline (roughly 18 cents) for the summer driving season. Democratic contender Hillary Rodham Clinton quickly added, “me, too!”

The tax “plan” purports to be a response to the financial pain felt by consumers as a result of skyrocketing gasoline prices (up over 50 cents this year alone): the theory being that by cutting 18 cents from the price of a gallon of gas, you save drivers something like $20 or $30 a month. . . and that will—I actually don’t know what it is supposed to do beyond that.

Oh, yeah, buy votes—but more on that in a moment.

It should probably be enough to say of any economic proposal that it was proposed by John McCain, and, therefore, must be ridiculous. But because the Clinton campaign seized on the gimmick as a way of differentiating their candidate from Barack Obama (who has rejected the tax holiday), the point bears reinforcing: A gas-tax holiday is one heck of a bad idea.

This is not a conclusion borne only of this campaign season. Two years ago (to the day, as a matter of fact), Congressional Republicans—then in the majority—were forced to abandon a package of proposals that had in its evolution included the exact same gas-tax holiday (or, in another incarnation, a $100 tax rebate check) because it was so universally discredited.

“That’s a stupid idea,” said Sen. Lisa Murkowski (R-AK). “It is short term; it’s not a fix.”

The 2006 Republican plans were an attempt to co-opt a pair of Democratic proposals. One was a similar gas-tax suspension offered by New Jersey Senator Robert Menendez; the other a $500 rebate plan offered by Sen. Debbie Stabenow (D-MI). Senator Menendez, a 2008 Clinton backer, came out last week in favor of her current gas-tax proposal.

The problem is, the plan for a tax holiday isn’t a good idea no matter which party proposes it, and it is no better or more serious a plan in 2008 than it was in 2006. There are lots of reasons why; Paul Krugman explained the economic one last week on his blog:

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. So it’s Econ 101: the tax cut really goes to the oil companies.

But Paul Krugman is an economist, one of many who have labeled the tax holiday a bad idea, and economists are not to be trusted with their evaluations of matters economic. . . or so says Senator Clinton. I’ll let, um, economist Robert Reich pick up the story:

When asked this morning by ABC News' George Stephanopoulos if she could name a single economist who backs her call for a gas tax holiday this summer, HRC said "I'm not going to put my lot in with economists.”

I know several of the economists who have been advising Senator Clinton, so I phoned them right after I heard this. I reached two of them. One hadn’t heard her remark and said he couldn’t believe she’d say it. The other had heard it and shrugged it off as “politics as usual.”

That’s the problem: Politics as usual.

The gas tax holiday is small potatoes relative to everything else. But it’s so economically stupid (it would increase demand for gas and cause prices to rise, eliminating any benefit to consumers while costing the Treasury more than $9 billion, and generate more pollution) and silly (even if she won, HRC won’t be president this summer) as to be worrisome. That HRC now says she doesn’t care that what economists think is even more troubling.

I will add that it is also troubling that Clinton decided to ditto a bad plan from McCain (albeit with the twist of a windfall profits tax to pay for the holiday—a proposal that itself has problems)—again blurring the difference between her and Republicans in a year where Democrats should be doing anything but.

Let’s call that “bad politics as usual.”

Which leads us to the other politician still standing in this presidential race, Senator Barack Obama. Obama has wisely chosen not to jump on the tax holiday bandwagon, calling it what it is, a gimmick that will siphon money out of the fund that goes to repair roads and bridges while netting little influence on the price of gas. His campaign even started running ads this weekend in upcoming primary states saying (and I paraphrase), The Clinton plan isn’t designed to get you through the summer—it’s designed to get her through the election.

That is a point that is spot on—I can’t imagine Clinton or McCain would be trumpeting this idea scam if it didn’t poll well—but Obama’s ad doesn’t quite close the deal. I would say that it is not enough to warn about what Clinton will do to you, Obama must also add what he can do for you.

Mark Shields, doing his usual weekly segment opposite David Brooks on The NewsHour, put it this way:

What Obama ought to do is say: This is the worst of Washington politics. This is what it is. This is bait-and-switch. This is Washington politics at its cheapest. They really think you're dumb. They think you're so dumb that they can buy you off.

We're a country -- everybody who drives a car knows that the roads in this country are in disrepair, that the bridges are in disrepair. What we're going to do is take 300,000 jobs out for this little gimmick of people working because that's where the gas tax goes, to rebuild the highways of this country and to maintain the bridges of this country.

And he ought to do it just on the basis and tie it -- this is the same kind of politics that had a "Mission Accomplished" sign up five years ago, that said there were weapons of mass destruction. That's what's wrong.

And I'm telling you what you don't want to hear. You want someone that tells you what you want to hear? You've got McCain, and you've got Clinton.

And that's -- if he did it in those terms, then if he did lose, he still would have lost standing on a principle and being different.

I would like to hear even a little more—maybe not in a 30-second ad, but on the stump or in television appearances—I would like Obama to communicate that rather than look for ways to afford just as much gas as always, or drive just as much as always, we should be looking for ways to maintain our standard of living while using less gasoline or just driving much less.

But first things first, I suppose, and first we all need to pitch in to help kill this latest sham issue. If this gas-tax holiday can be exposed once-and-for-all as bad economics, as a pander-fest, as nothing but an election year gimmick, then maybe, just maybe, we can get back to issues that really affect the personal economics of working Americans—issues like affordable healthcare, the Iraq war, tax inequity, and George W. Bush’s recession.

Then again, if history is to be our guide, the gas-tax holiday will never be dismissed once-and-for-all. To quote the now ex-Senator from Montana Conrad Burns (R) from the 2006 gas-plan discussion: “If you believe in reincarnation, you want to come back as a bad idea because it never dies.”

(Thanks to LGS for forwarding the 2006 NYT article my way.)

(cross-posted on The Seminal and Daily Kos)

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