McCain proposes suspension of gas tax.
Presumptive Republican nominee John McCain proposed a temporary suspension of the federal gas tax for the summer season (from Memorial Day to Labor Day). The intent of McCain’s proposal (which also includes the suspension of oil purchases for the Strategic Petroleum Reserve) is to ease the financial burden Americans are facing at the gas pumps. Currently there is an 18.4 cent and 22.4 cent per gallon federal tax on gasoline and diesel, respectively.
Although we don’t have an economist’s background, we wouldn’t be surprised if removing this tax simply leads to gas stations raising their retail prices and thereby eliminating any intended savings. However, if the gas companies and retailers don’t make up for the spread with price increases, one result of the price of gas going down would be to reduce incrementally the incentive on entrepreneurs to develop alternatives to petroleum.
It is basic economic theory that as gas prices go up, alternative energy sources which may previously have been too expensive, inherently become more competitive with gasoline. Fortunately McCain has the foresight to put a sunset on the gas tax suspension proposal, but nonetheless, it will be interesting to see if this policy, if enacted, creates a precedent that will be used to decrease gas prices again in the future.
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Comments
One Comment on McCain proposes suspension of gas tax.
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Beauxbear on
Wed, 16th Apr 2008 9:53 am
From what I’ve heard this has been proposed several times before but has never passed. The money from the gas tax often goes to local highway projects so lawmakers and lobbyists oppose cutting it.
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