Monday, May 05, 2008

Gas Tax Follies

I'm not even sure if I've waded in on this one, but yes it's a dumb idea to have a gas tax holiday. Tax incidence on the gas tax in more normal times is roughly split between buyers and sellers, but if gas prices are going up because we've hit capacity then sellers are basically paying the tax, and if you remove the tax you're just giving oil companies a windfall as gas prices will just increase to what they were when the tax was in place. I also think it's dumb politically as it's something you promise and then when it happens people realize that you didn't give them anything. The only decent argument against raising the gas tax (nonpolitical argument anyway) is that it's regressive, but that can be offset by, say, giving everyone a couple hundred dollar tax credit on their income taxes. put it another way, if you think people should get an extra $40 this summer (an extremely optimistic view of what a gas tax holiday might save them), then give them an extra $40.