Cutting Federal Gas Tax a Wise Idea?

US Presidential hopefuls from both parties John McCain and Hillary Clinton have recently floated the idea of repealing the Federal Tax of 18.4 cents a gallon on gasoline. Their reasoning being, since gasoline is almost $4 a gallon, repealing the tax during the summer months (which is a peak driving season in the US) would make it a little bit cheaper for the average American. But here is where their reasoning fails.

Recent reports have suggested that due to record high gas prices in the US, there are clear signs of decline in demand for gasoline. If you are an environmentalist who is worried about Global Warming this is a very good sign. But artificially reducing the gas prices would probably increase the demand, ultimately driving up the prices again. All of that extra money would go into the already bloated coffers of the oil companies. So eliminating the gas tax during the summer months would bring about a short term relief if at all.

What about the cost to the tax payers? According to the the recent editorial in The New York Times, this temporary relief in gasoline tax would add another $9 Billion to the already huge budget deficit. Not to mention the administrative difficulties of turning off the tax in May and turning it back on in September.

In this era of global warming, it makes more sense to reduce the consumption of fossil fuel rather then encourage it. But eliminating the gas tax would do just the opposite.

Read Thomas Friedmans Op Ed on this topic.
Also read News Stories on this same topic.