Special Report

McCain Goes on Tax Holiday

He's taking undeserved heat for wanting to suspend the gas tax this summer.

By 5.7.08

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Senator John McCain is getting too much heat for his recently announced proposal to suspend the gas tax for the three summer months between Memorial Day and Labor Day. The right is whacking the plan's economics, while the left is shaming it's politics. Even the Wall Street Journal labeled the idea "poll-driven gimmickry." But the idea has proven popular, with Senator Hillary Clinton, a few New York State legislators, and some congressmen and women picking up the baton.

If it's so popular, then why the dismissal in the first place? Well, because those who dismiss the plan are right -- to some extent. The tax suspension wouldn't save a ton of money and, as anyone can see in the way Sen. Clinton beat Sen. Obama over the head with the idea, it is politics in its rawest form.

But Sen. McCain's plan -- not the Clinton bait-and-switch-and-tax, which would also snag the oil companies' profits -- is an idea worthy of deliberation for two reasons: It provides a little relief to hard-working Americans, and it more importantly forces the government to do more with less.

The plan would allow motorists to keep anywhere from $40 to $70 of their own money over the summer, and, if successful, could even lead to the gas tax's abolishment.

As McCain's senior economic advisor and former Congressional Budget Office director Douglas Holtz-Eakin told me the other day, "What the Senator is proposing with this idea is not a panacea to the country's economic woes, but a little break for the American people. Too many Americans are on hard economic times, and a breather this summer will help to ease things even a little bit."

The entire summer-long suspension is estimated to prevent the government from collecting anywhere from $8 to $10 billion. Critics charge that this money is already earmarked for the Federal Highway Fund. But making it up isn't the hard part; changing the mindset in Washington as how best to make it up is. Fiscally responsible adults from both parties know the money is there, it will just take setting priorities and some simple accounting procedures to shift the money from other areas to the fund, putting helping motorists ahead of special interests and wasteful spending.

And taking away the government's profits on our consumption might not be so bad. As Phil Kerpen, policy director at the Washington, D.C.-based free market group Americans for Prosperity, puts it, McCain's proposal deserves praise over Clinton's "not for what it is but what it isn't -- another monotonous attack on the oil industry's profits." Kerpen continued, "The reality is that, historically, tax revenues in the oil sector dwarf corporate profits, meaning the real windfalls in the industry have gone to government. Shining a spotlight on government's role in increasing prices is more productive than reactionary attacks and policies that would include higher taxes and, thus, even higher prices."

The criticisms of the plan often smack of elitism. The American people seem to like the idea of paying less; it's those who don't usually drive their own cars who don't like it. Since the economic trickle-down is insignificant at best, those elitists say, let's keep the tax in place because the government needs the money more than we do. Some have gone so far as to tell lower-income families -- who are more likely to drive to their vacation destinations than their middle- and higher-income counterparts -- to sacrifice their holidays this year.

The broader point of the plan should warm the cockles of fiscal conservatives' hearts. The government surely doesn't need any extra money, and there are plenty of instances where Washington doles out funds which it has no business doing, such as to the Carter Center, run by former President Jimmy Carter at Emory University, which has received close to $20 million since 2001. Do we really need to be funding photo-ops with Hamas?

Examples are aplenty. While working on Rudy Giuliani's presidential campaign this past year, we in the policy division batted around ideas to dramatically shrink the size of government, which the Mayor dreamed of doing. Such ideas were at first thought of as anathema to the general public. (Sell Amtrak? Never!) But the ideas are there in numbers and it was clear that government is mired in wasteful spending and earmarks. Not all are bad, but many are. And it will take a candidate with a strong record to sell this message.

As McCain's advisor Dr. Holtz-Eakin continued, the gas proposal "cuts to the core of what the Senator believes, which is that this money should stay where it belongs, with the taxpayer. It's their money -- not the president's, not Congress's. And a President McCain understands this, and will do what he can to change the mindset of those in Washington." Sen. McCain is a good messenger, with his beliefs on government transparency and spending.

Anyone who took Econ 101 knows that this is not the greatest economic idea, and will barely measure a blip on the radar screen of life. But when a tax can be cut, it should. Throughout his tenure in New York City, Mayor Giuliani instituted sales-tax holiday weeks on clothing, under the theme "A Welcome Break from a Burdensome Tax." During those weeks, retail sales soared. As a result, the New York City sales tax was abolished for most items under a certain amount. Wouldn't it be great if Sen. McCain's experiment found the same result for the federal gas tax?

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About the Author

Marco DeSena was a domestic policy analyst and assistant speechwriter for Rudy Giuliani's presidential campaign. Email: marcodesena@hotmail.com