Definitions

tax loophole

Gas tax holiday

In United States politics, the gas tax holiday or the gas tax loophole is a proposal made by presidential contenders Arizona Senator John McCain and New York Senator Hillary Rodham Clinton to suspend the federal excise tax on gasoline from Memorial Day to Labor Day in the year 2008. Proponents argue that this could potentially reduce the price of gas at the pump by about 18.4 cents a gallon for regular unleaded gasoline and 24.4 cents a gallon for diesel. If so, it is estimated the gas tax holiday would save consumers roughly a total of $30 over the three month period it would be instated. However, Barack Obama and others point out that the oil companies would not significantly lower prices and would instead pocket most of the tax cut, effectively turning the cut into a tax loophole.

Proponents

Presidential hopefuls John McCain and Hillary Rodham Clinton have both championed this proposal. The two political opponents purport this to be a short-term fix for gas prices that are set to hit $4 a gallon this summer. With economic woes topping the American peoples' list of concerns, this has become a hotly debated issue in the 2008 U.S. Presidential Election.

Clinton demurred when asked to name a single economist who supported the holiday, but libertarian George Mason professor Bryan Caplan wrote a New York Times op-ed arguing that "we could do a lot worse than the gas tax holiday." He said that while he agreed that it would not seriously reduce prices due to increased demand, it was "a relatively cheap symbolic gesture that makes truly bad policies less likely" and that it would give oil companies an incentive to increase production.

Critics

The proposal has met criticism from a wide array of news sources, politicians, the vast majority of economists, and the current Bush administration.

Economic theory is very clear that the incidence of a consumption tax (who is expected to pay the tax) is inconsequential. Even if it were to lower the cost paid by the consumer, it would just result in a spike in demand during the period it was in effect with rising prices in response.

Barack Obama is perhaps the most visibly vocal critic of the measure. He and other critics of the proposal have exclaimed that the holiday would be nothing more than a "short-term, quick-fix" that will not solve the nation's current and long term problems of high oil prices and foreign oil dependency. They have nearly unanimously denounced the scheme as nothing more than pandering for votes in the Indiana and North Carolina primaries.

Since the tax is collected from producers and given the fixed supply and high demand for gasoline, it has been considered unlikely that the producers would pass that savings on to consumers at the pump. Furthermore, State highway officials claim the move could eliminate nearly 300,000 jobs over the summer months due to nearly $9 billion in lost revenue that would be incurred if some other source of revenue is not found. Hillary Clinton has proposed levying a new tax on oil company profits in order to make up for it. However, both the Clinton and McCain proposals would most likely never be passed due to the overwhelming opposition of congressional leaders.

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