It is pretty amazing that something so insipid as a "gas tax holiday" from John McCain could gain any traction with the media... and with Hillary Clinton. The whole idea is so ridiculous that I find it hard to believe that it is being taken seriously by anyone. Clearly, there is some world-class pandering happening here, but it just doesn't take more than two seconds to realize that the idea is just plain dumb. The tax is something like 18 cents a gallon. All of that goes to highway and road construction. So where would that money come from if the tax is gone? Hmmm, I guess we can put that one on the national credit card... as for Hillary's idea of taxing the oil companies to pay for it, any guess as to whether Bush will sign that law? Uh huh.
Another part of the stupidity of this idea is something that republican McCain is supposed to understand - supply and demand. One of the main reasons why oil is so expensive is that there is too much demand, and not enough supply worldwide. When price goes up, one is taught by economists, the demand goes down until there is an equilibrium. So we should expect that after a period of $4 a gallon prices, people might start thinking about trimming fuel use. Most people can't go out and buy a new Prius tomorrow, but they might think about it more when it is time to trade in the Chevy Suburban in a few years. The idea is that gas is somewhat an in-elastic commodity in the US. People need to get to work, and our urban environments are built around cars and cheap gas. Changing those patterns and building a public transportation infrastructure take time and money. The only way those individual and collective investments are going to happen is if high fuel costs are sustained over the long term. I'd be willing to bet that gas isn't going under $3.50 a gallon ever again. So with all that in mind, dropping the gas tax isn't going to help anything, it is going to make things worse. If the slightly lower price stops people from conserving even a little bit, it will keep demand high, and cause the price to go up with a tight supply. Furthermore, it will divert resources which could be going to other non-carbon based energy research and development into making up the fuel tax revenue.
Take a look at a great article in The Guardian on Sweden's experience with a carbon taxes:
Between 1990 and 2006 Sweden cut its carbon emissions
by 9%, largely exceeding the target set by the Kyoto Protocol, while
enjoying economic growth of 44% in fixed prices.
Under Kyoto, Sweden was even told it could increase its emissions by
4% given the progress it had already made. But "this was not considered
ambitious enough," explains Emma Lindberg, a climate change expert at
the Swedish Society for Nature Conservation.
"So parliament decided to cut emissions by another 4% [below 1990
levels]. The mindset was 'we need to do what's good for the environment
because it's good for Sweden and its economy'."
The main reason for this success, say experts, is the introduction
of a carbon tax in 1991. Swedes today pay an extra 2.34 kronor (20p)
per litre when they fill the tank (although many key industries receive
tax relief or are exempted). "Our carbon emissions would have been 20%
higher without the carbon tax," says the Swedish environment minister,
Andreas Carlgren.
So basically, what we should be doing is raising the gas tax, not eliminating it. By making the public pay the costs of the externalities of oil use, we will allow people to make more environmentally-friendly choices. We have distorted the market in that we don't make anyone pay the full cost of using carbon-based energy sources. Once the true costs of it are factored in, and people have to pay for it, they will be more likely to act in their economic interests and choose energy which is cleaner for the environment. The demand for those energy sources will allow for sustained R&D in the least polluting energy sources.
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