You knew it was going to happen eventually. Every four years a bunch of politicians come up with plans that they think will save the country. Some plans are brilliant, some benign, and some are just plain idiotic. The gas tax holiday, which now appears to be a nonstarter and has even been billed by Dick Cheney as a "false notion," certainly falls into the idiotic category.
The theory behind the holiday is that the government should repeal the federal tax of about 18.5 cents per gallon of gas to help Americans get through the tough summer driving months. On the surface, this plan -- championed by Sen. John McCain and Sen. Hillary Clinton and panned by Sen. Barack Obama on the campaign trail -- isn't that bad. Of course, on the surface, asbestos seemed like great insulation.
The first problem is that the money generated from this tax pays for the Highway Trust Fund. This is the fund that pays for things like maintaining roads and bridges, and building new ones. Everyone remembers the tragedy that took place last year on I-35W in Minneapolis when a bridge over the Mississippi River collapsed. The general consensus is that there are thousands of other bridges in the United States that are in dire need of repairs. Pulling billions from the fund that needs to fix these bridges isn't the right plan.
Second, the savings of less than a quarter per gallon, if it were all passed on to the consumer, doesn't amount to much. The average consumer would save about $30 during the length of the holiday. Not much in savings when you figure the loss to the Highway Trust Fund. Add to it that simply lowering the tax on gas doesn't mean that every filling station would drop their prices by that amount immediately. There are a lot of middlemen who might absorb some of the "savings" and pass a smaller discount on to the consumer.
Third, the holiday amounts to a subsidy by the government to purchase foreign oil. I'll save you from a long discussion on strained relations with the places that sell us oil. Cheaper gas encourages big SUVs and inefficient cars and trucks, and discourages research to find new ways to generate power.
There aren't many times you're going to read me saying this, but Obama has it right: the gas tax holiday is a dumb idea. Even more surprising coming from me, I think the tax is too low and we should raise it. But more on that in a bit.
Clinton and McCain are both fans of the tax holiday, giving great concern on whether anyone in Washington has any sense left. Clinton's plan says this could all be paid for by a "windfall profits tax." Don't even get me started on the lunacy of that plan.
I should explain that I hate taxes; I don't believe in big government in the least. But I do see some needs for it -- police and fire, courts, schools, military and ROADS. It's not possible to privatize every road out there (although I do support the theory) and we need the government to do something about the roads. A gas tax holiday would strip money from one of the (very few) vital roles of government.
So, what's the solution? Raise the gas tax by $1.00. Yep, a whole buck. For those of you who say that it would be a regressive tax hurting the poorest Americans, not to worry. We could give a rebate to every American on their payroll taxes (or similar benefit to those on Social Security) to even the amount out and keep from hurting the people who are forced to drive. There becomes an incentive to drive less, which is good for their pocket books, the environment and international relations.
The results of this higher tax would be: 1) fewer people will drive long distances in gas guzzlers; 2) the oil companies will have to lower their profit margins if they want people to drive; 3) entrepreneurial-minded people will start thinking of ways to generate power without oil. Many are already. The simple act of raising the gas tax begins to take us off foreign oil, will normalize oil company profits through the free markets, and will actually begin to stimulate our economy.
Last updated: Jun 3, 2008
CLINT GREENLEAF is the founder and CEO of Greenleaf Book Group (GBG), an Inc. 500 company, and a leading publisher and distributor with several NY Times and Wall Street Journal bestsellers. Clint (a CPA) sits on the University of Texas Libraries Board, blogs for Inc.com, is a regular guest host on Fox Business Network and has been featured in the Wall Street Journal, Inc. magazine, Fox, MSBNC, Money magazine, Men's Health, Forbes and Entrepreneur. @clintgreenleaf