What Tax Holiday?

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THE VINE APRIL 15, 2008

What Tax Holiday?

Dean Baker argues that John McCain's "gas-tax holiday" proposal wouldn't actually lower gas prices—it would just allow oil companies to charge more at the pump:


According to the oil industry, they have their refineries running flat out, producing all the gas they can. This means that the price is determined on the demand side.

We have a fixed amount of gas entering the market, the question is simply what price clears the market. In this context, if we reduce or eliminate the gas tax, the price doesn't change, the lower tax will simply allow Exxon and other oil companies to keep more profits (unless of course they were lying about running their refineries at capacity).

Of course, Congress could require that retail gas prices fall by the full amount of the tax, but that would just create shortages. Either way, it's a bad idea. (Not to mention the fact that suspending the gas tax puts the highway trust fund in an even deeper hole. But, hey, it's not as if bridges in this country are collapsing or anything...)

--Bradford Plumer

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