News Analysis: Why a Gas Tax Holiday Is a Bad Idea for Travelers

Pay at Pump SignRecently, presumed Republican presidential nominee John McCain floated the idea of a “gas tax holiday” between Memorial Day and Labor Day, the beginning and end, respectively, of the summer driving season.

It may sound like a nice thing to do for travelers, since the federal excise tax on gas is a bit over 18 cents per gallon.

But instead of leaving more cash in the wallets of working families, what it may actually do is put more money into the pockets of oil companies.

Welcome to Supply & Demand 101.

Summer is undeniably the big driving season in the U.S. That’s why prices seem to skyrocket during the summer–because demand pushes the refineries that make gas to their production limits. According to the US government’s Energy Information Administration, refinery utilization regularly rises to around 95 percent of capacity during the summer months.

And the price swing between the lows of winter and the highs of summer? A whopping 55 percent average swing over the twenty years to 2006, according to the Oil Price Information Service, a widely accepted fuel price benchmark.

But a gas tax cut could cause consumption to rise as consumers opt for longer driving vacations. And with refineries at capacity, a shortage could be the result. With more demand than supply–and regardless of a tax moratorium–prices could easily rise.

Gas Station PumpsEven if the shortage doesn’t reach the point of ’70s-style gas lines (something most experts see as unlikely), a dearth of extra gasoline supplies would inevitably drive up prices. And if the 55 percent price swing is even close to accurate this year, it would more than wipe out the savings from the gas tax cut.

And then, there’s one more “if.” If the resulting rise in consumption causes the swing to be more than 55 percent … we could be saying hello to $6/gallon gas.

Now, let’s assume that there are no gas price increases, and that the full 18 cents per gallon savings goes directly to consumers. According to an editorial in the Arizona Republic by Kathleen Ingley, for an average family purchasing 50 gallons of gas in a week, the savings is about $9.

According to the Americans for Transportation Mobility, a national coalition which represents over 400 major transportation users and providers, this would cost the already-underfunded Highway Trust Fund around $9 billion. Currently, this money funds a wide array of transportation projects, from highways to bridges. While McCain proposes simply taking cash from the government’s general fund which has a multi-trillion dollar debt that continues to grow, the tax holiday could result in cuts to transportation programs.

According to Yael T. Abouhalkah of The Kansas City Star Editorial Board, the cuts could idle the construction workers on these projects. With a sagging economy and the steep drop in housing construction, this could send builders into an even more perilous tailspin.

So in review, class, what would a gas tax holiday really mean?

  • A windfall for oil companies and refineries
  • Even higher prices at the pump
  • Funding cuts for transportation improvements
  • Increased pollution and congestion from more cars on the road

In truth, the real issue here is not paying less for gas, but the need for an increased focus on consumption. Tax or no tax, history indicates that if we’re driving more this summer, we’ll be paying more to fill up at the pump.

Links: Arizona Republic, The Kansas City Star

By New Media Manager Matthew Calcara for PeterGreenberg.com.

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