This week, Senator Hillary Clinton came out in support of lifting the federal tax on gasoline during the summer months, an idea originally proposed by Senator John McCain. Senator Barack Obama publicly scoffed at the idea, saying "this isn't an idea designed to get you through the summer, it's designed to get them through an election." Obama explained that the overall savings for a family over the summer would probably average about "$25 to $30. Half a tank of gas."
The federal gas tax is currently 18.4 cents per gallon for gasoline and 24.4 cents per gallon for diesel. With the average gasoline price $3.60 per gallon this week, the federal gas tax is only around 5 percent of the total cost of gasoline.
While the benefit to the consumer may be too small to even notice, this proposal could have a very real and very negative effect on the Highway Trust Fund which is supported by the gas tax and which we depend on to fix and improve congested highways and roads in need or repair. The American Society of Civil Engineers points out that every dollar spent on highway construction is estimated to bring $5.40 in benefits and every billion dollars spent on highway construction generates about 30,000 jobs each year, according to the Department of Transportation. Repealing the gas tax for a summer would cost the Highway Trust Fund about $8.5 billion.
It's true that the gas tax is a regressive tax, requiring low-income drivers to pay more of their income in tax than wealthier drivers. But the gas tax is different from most other taxes in ways that minimize the importance of tax fairness. Most notably, the gas tax can serve to help reduce demand in a market where many would agree demand is far too high. With gasoline in limited supply (Paul Krugman explains that the supply is actually fixed for the next few months), environmental concerns continuing to mount, and traffic congestion remaining a problem, any effect the gas tax has on reducing demand should be a welcome one.
Senator Clinton would replace the money in the Highway Trust Fund by enacting a new windfall profits tax for oil companies. With a White House opposed to anything that can conceivably be called a tax increase and a Senate that has trouble paying its bills, it's hard to imagine this part of the proposal being enacted during this Congress. President Bush said he was open to considering the idea of a gas tax holiday, but there appears to be no chance he would ever support a windfall tax on oil companies to pay for it.