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Wednesday, April 16, 2008

McCain’s Loopy Tax Proposal

posted by on April 16 at 16:12 PM

Here’s some “maverick” thinking for you: GOP presidential candidate John McCain wants to “spread [tax] relief across the American economy.” So will he be cutting the income tax? Providing a rebate on the sales tax, one of the most regressive taxes in existence?

Nope. From the AP:

PITTSBURGH - Republican Sen. John McCain on Tuesday called for a summer-long suspension of the federal gasoline tax and several tax cuts as the likely presidential nominee sought to stem the public’s pain from a troubled economy.

To help people weather the downturn immediately, McCain urged Congress to institute a “gas-tax holiday” by suspending the 18.4 cent federal gas tax and 24.4 cent diesel tax from Memorial Day to Labor Day. By some estimates, the government would lose about $10 billion in revenue. He also renewed his call for the United States to stop adding to the Strategic Petroleum Reserve and thus lessen to some extent the worldwide demand for oil.

Together, McCain said, his proposals would “bring a timely reduction in the price of gasoline. And because the cost of gas affects the price of food, packaging, and just about everything else, these immediate steps will help to spread relief across the American economy.”

Now, let’s take a closer look at that statement.

First, McCain says his proposal will reduce gas prices. The problem is, the federal gas tax isn’t why prices are so high (high enough that, for the first time in recent memory, people are starting to drive a little less); the reason gas prices are high is because the price of oil is $113 a barrel—a record level. The nationwide average price for a gallon of regular gas is $3.40 a gallon; cutting that price by 18 cents amounts to a five percent reduction. Put another way, the savings for a typical driver—one who drives about 12,000 miles a year—would be less than $28, or about half the price of a tank of gas. If that’s the tax cut that’s supposed to trickle down to ordinary Americans in the form of cheaper goods, food, and packaging, good luck even noticing it.

Not that McCain’s “trickle-down” thesis makes any sense in the first place. The “tax holiday” he’s talking about, after all, is only three months long. The economy is unlikely to respond to such a short-term reduction—especially if gas prices continue to increase. In fact, economists say that reducing prices actually stimulates consumption, triggering even higher prices. That “tax relief” isn’t going to be very comforting when you’re paying $4.00 a gallon.

Fortunately, that gas tax isn’t paying for anything important, right? Oh, just the Highway Trust Fund, which pays to fill potholes, fix crumbling roads and bridges, and patch up America’s failing highway infrastructure. Oh, yeah, and it’s running out of money already; currently, the trust fund faces a $2-$3 billion deficit. McCain says he’ll fill the gap by taking money out of the nation’s general fund. That’ll increase the deficit, but whatever—when you’re already $410 billion in the hole, what’s another $8 to $10 billion?

Of course, as you may recall, we’re heading into a recession. Cutting federal spending during a recession is no way to stimulate the economy. According to the US Transportation Department, every $1 billion of federal highway investment supports 34,779 jobs.

Then again, McCain is the same guy who said he would “leave it for others to speculate on the technical definition of a recession.”

(Incidentally, if this “gas-tax holiday” sounds familiar… well, it is.)

RSS icon Comments


You're suggesting the federal government provide a rebate for state sales tax?

Posted by w7ngman | April 16, 2008 3:58 PM

His same proposal would eliminate (not adjust, not "fix") the Alternative Minimum Tax that's primarily paid by people making over $200k/year, as well as include a whole boatload of corporate giveaways. So the gas tax "holiday" is at best a temporary cut for lower-income people, grouped in with more huge cuts for rich people. Sounds familiar...

The WaPo just about covers it.

Posted by cdc | April 16, 2008 3:59 PM

...and that wouldn't be loopy?

Posted by w7ngman | April 16, 2008 4:00 PM

Yes, we should definitely have a gas tax holiday, because that means that we won't have any more interstate bridges collapse, because impending disasters due to lack of investment will be on a holiday also (They always vacation together, you know).

Old people are so smart!!!!

Posted by McCain Brain Drain | April 16, 2008 4:18 PM

OK, it's official, he's got dementia.

I'm sure all the collapsing roadways and bridges nationwide thanks to his gas tax "holiday" won't matter to him, since he'll be busy invading Iceland ...

Posted by Will in Seattle | April 16, 2008 4:24 PM

...also interesting: Gas taxes aren't particularly regressive, despite the common impression that they are, and thus a temporary cancellation of the gas tax wouldn't even be particularly progressive at all. So maybe I was partly wrong above - for lower-income people, there's really no benefit at all from McCain's tax schemes.

Posted by cdc | April 16, 2008 4:29 PM

@3: Depends. Is it loopy for the federal government to give rebates for state income taxes?

Posted by Greg | April 16, 2008 4:34 PM

Not that it matters, but the economists do not say that a tax reduction would result in higher prices - what they said is that lower prices could increase consumption which could lead to higher prices. Odds are that a temporary gas tax holiday wouldn't encourage people to move farther from work, buy a less efficient car, or make the kind of long term choices that would lead to long term higher prices.

It's still a worthless idea, the only value being the pander.

Posted by McG | April 16, 2008 4:36 PM

#5, and it would probably take him 5 years and cost $3 trillion.

Posted by w7ngman | April 16, 2008 4:38 PM

How about this: leave the regular gas tax be and cut the Diesel in half for the summer. That way you only spent 3 bil and slash the transportation costs of goods; since the trucking industry and farms use 90% of the diesel on the market. At the same time keeping people from driving so fucking much and saving the gas that's left for real shit like... growing food.

Posted by Colton | April 16, 2008 4:38 PM

Good 'ole (and I do mean old) McCain. He's a strong leader (even though he has a notoriously unpredictable temper), a good man (even if he left his first wife and family to marry a rich heiress half his age) and a solid expert on foreign affairs (even though he gets confused discussing the basic facts of the war in Iraq).

When and if Obama finally wraps up the nomination, thank God all those smart, prudent (bitter, misguided) former Clinton supporters will vote for McCain! He is the (old as dirt) Man!

Posted by Matthew | April 16, 2008 4:48 PM

#7, are they doing that? I guess I wouldn't know since I've never paid state income tax, but yes, I would think that is kind of loopy. At the very least I wouldn't call it a rebate.

Posted by w7ngman | April 16, 2008 4:51 PM

#11, you overlooked that he's a very well accomplished economist.

Posted by w7ngman | April 16, 2008 4:56 PM

Yeah even the Wall Street Journal thought that was retarded.

Posted by John | April 16, 2008 4:57 PM

@12: Yeah. It's one of the things that makes Washington's tax system so much more annoying. We have a sales tax exemption - FOR NOW - but it only applies to people who itemize their deductions. Meanwhile, states with an income tax system have exemptions that apply to everyone.

Posted by Greg | April 16, 2008 5:03 PM
Posted by w7ngman | April 16, 2008 5:10 PM

$410 billion is the deficit for 2008 only. The total deficit is around $9.4 trillion and counting.

Posted by Mahtli69 | April 16, 2008 5:43 PM

He's just hoodwinking. He wants to paint himself as the candidate who is "doing something.

Seems to be the republican mantra this season: Bribe the voters. Is the whole fear thing out this time around? Seems like they used to be more subtle. "Economic stimulus" package, gas tax "holiday," Rossi's completely asinine transportation package....

They will stop at nothing.

Posted by Cale | April 16, 2008 7:43 PM

Oh, and I think the term "borrow and spend" republicans is completely appropriate now and should be widely adopted.

Posted by Cale | April 16, 2008 7:45 PM

I'm kind of surprised he's even suggesting it. I can already see the campaign ads now showing images of the collapsed bridge in Minneapolis.

Posted by Jeff | April 16, 2008 9:36 PM

Good post, Erica. Thanks.

Posted by ivan | April 16, 2008 10:35 PM


The $9.4 trillion is our debt: what we currently owe.

The $410 billion is our deficit: how much more we outspend taxes every year and have to borrow from the Chinese.

Posted by keshmeshi | April 16, 2008 10:50 PM

Okay, I don't really get your numbers. Let's say someone's saving 18 cents per gallon on taxes, and let's say they ONLY drive 12000 miles a year (which I think is insanely low, going from a commuter in southern california to a tiny little town in Idaho, where I drove 8 - 10K miles a year, and I worked at home), AND they get a respectable 30 miles to the gallon (who the hell really gets that?) -- that's 12000 miles divided by 30 miles to the gallon times 0.18 cents per gallon = $72 saved. And like I said, 12K miles is a really low number of miles. People in California -- granted, it is California, and they have those freeways that give you a direct route to and fro -- have two hour commutes both ways. What? 30 to 60 miles let's say. Times 2x a day. Times 5 days a week. Times 50 weeks. That's 15000 JUST FOR WORK. Double it, easy.

I have no idea what McCain's plan is or how it might or might not reduce gas prices, but your numbers are messed up.

Posted by idaho | April 17, 2008 2:08 AM

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