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Friday, May 16, 2008

Gas Tax Holiday

Not too long ago, Senator John McCain called for a summer-long holiday from gas taxes.

"To help people weather the downturn immediately, McCain urged Congress to institute a "gas-tax holiday" by suspending the 18.4 cent federal gas tax and 24.4 cent diesel tax from Memorial Day to Labor Day. By some estimates, the government would lose about $10 billion in revenue. He also renewed his call for the United States to stop adding to the Strategic Petroleum Reserve and thus lessen to some extent the worldwide demand for oil…Combined, he said, the two proposals would reduce gas prices, which would have a trickle-down effect, and "help to spread relief across the American economy." (MSNBC)

Senator McCain’s reasoning behind repealing the tax is to spread relief across the economy. However, would this really spread relief? Assuming the average gets 20 miles per gallon, and the average person drive somewhere between 1,000 to 2,000 miles per month, that would mean people would save, on average, somewhere between $27.60 and $55.20 over a three month period. While every penny helps, saving this amount of money over a three month period will not really have much effect on the average consumer. The total three month savings, in this scenario, is less than 10% of the tax rebates, and those are delivered in a lump sum, rather than over a three month period. Looking at this from a cost-benefit standpoint, the government would be losing $10 billion in revenue. This money is necessary to improve poor quality roads and highways. Basically, we would be gaining something as insignificant as a dinner at Old Chicago’s (which would take us three months to save for), and in exchange the quality of our roads will be seriously hurt. This just goes to show us how politicians will say virtually anything to get elected, without considering the economic impacts of their proposals.

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