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Suspending The Federal Gas Tax

Apparently Senator Clinton has reversed her prior stance and is now joining Senator McCain in calling for a federal gas tax "holiday" this summer. I guess this shouldn't come as a big surprise. Nothing seems to get voter's attention like high gasoline prices, and this is a quick "fix" to bring down prices. Furthermore, it's the only easy "fix" that would have an immediate impact.

Overall, this is a bad idea. The strongest case you can make for it is to frame the proposal as an economic stimulus measure, similar to the rebate checks the government is currently mailing out. And even for that purpose it's not a particularly efficient or equitable means of priming the economy (lots of people don't use cars.)

What's wrong with this plan? One problem is that it cuts off a major source of highway funding. Remember that bridge collapsing in Minneapolis last year? Apparently some politicians don't. Or rather they don't recall all the talk they made of beefing up our national infrastructure. How are we supposed to maintain crumbling bridges and highways while cutting off the money? It's irresponsible financial management.

Moreover, a gas tax holiday sends the wrong message to consumers. The temporary duration of the plan suggests that the run-up in gas prices we've experienced is only a short-term phenomenon. In other words, once we weather this short-term shock, prices will then return to "normal."

I can't see the future, but my hunch is that the opposite is true. Global oil demand is growing, while production (since 2005) has remained flat. So, absent a world-wide economic recession, I think oil prices will likely be even higher next year.

This means we should be earnestly pursuing policies that reduce our consumption of gasoline. A tax rebate does the contrary by encouraging motorists to consume more gas. That's bad policy.

If politicians are concerned that about the impact rising fuel prices are having on the economy, they should seek solutions which do not create an incentive for Americans to use more fossil fuels.