To help Americans pay for the increasing price of a gallon of gas, Hillary Clinton is suggesting a suspension of the 18.4 cent per gallon tax on gasoline and 24.4 cent per gallon tax on diesel from Memorial Day through Labor Day while enacting a “windfall profits” tax on the oil companies which have been making money hand over fist through out 21st century so far. John McCain is also in favor of a gas tax “holiday,” but Barack Obama calls this strategy pointless and possibly more harmful for the economy.
Obama figures that the gas tax holiday would save American consumers about 30 cents a day while underfunding the federal fund that pays for road improvements. And while we’re in an election year, Obama points out that Clinton and McCain’s positions are political posturing moves rather than good economic solutions.
Ignoring the fact that when a tax holiday is in practice, gas prices might simply rise to negate the savings and match what consumers are willing and able to pay, the 18.4 cent theoretical reduction in a gallon of gas will be almost invisible. With a gallon of gasoline around $3.60 for me here in New Jersey, this 5% discount doesn’t even bring the price down to its level from a few months ago.
Clinton suggests paying for the loss of government income by increasing windfall profits taxes for the oil industry. If there is a gas tax holiday, should oil companies pay for the loss of government income through taxes assessed for earning significant profits in this economy? I feel no pity for the large corporations, and I wouldn’t mind if their taxes increase. However, I don’t think this solution would improve the economy.
As a country, we seem to be willing to continue spending on gasoline no matter what the price, but perhaps that is only because we have little choice. If we stop driving, we stop going to work, earning money, and feeding our families. We’re ready to spend as much on gasoline as necessary to continue our lives, giving oil companies the freedom to keep pushing prices upwards.
The oil industry obviously is not happy about the idea that their profits could be taxed, claiming that taxes would eat into available capital for new production, but their profits are mostly used for buying back stock rather than research and development.
Rather than Clinton’s plan to tax oil companies, McCain wants to freeze or cut spending to pay for the gas tax holiday. Obama thinks these suggestions sound nice to voters but would have little real effect. What do you think?
Updated December 20, 2011 and originally published May 7, 2008.