HAPPY HOLIDAY!

There's no other way to say this: John McCain's "gas tax holiday" is a really, really, really dumb idea.

Now, I'm not an expert in economics (yet). I have a basic proficiency. But even a basic proficiency is sufficient to see why this is a dumb idea. The plan goes a lil' somethin' like this...

Gas prices are high. The government taxes gas. So the best way to lower gas prices is to get rid of the tax. But the gas tax is actually a really good way to raise revenue, compared to other taxes, so we'll make it temporary. We'll just get rid of it for the summer... no gas tax from May to September.

It sounds logical. But there are some obvious problems here. First of all, the gas tax is peanuts-- 18.4 cents a gallon. Shaving a couple dimes off the price of a gallon of gas is hardly a windfall for American consumers. It is certainly not the "natural economic stimulus" McCain described it as being.

But suspending the tax might even make gas more expensive, not less. Gas prices go up every summer because demand increases, and oil refining isn't an industry where you can quickly expand output to meet the increased demand. And anyone who's taken introduction to microeconomics can tell you what happens when demand increases and supply can't keep pace.

Removing the tax will make it even worse. Tell 300 million Americans that gas will be cheaper for the next six months. People will respond by using more gas than they otherwise would. Again, since oil companies can't magically make more gas (especially with such ridiculously short notice), demand increases, supply remains constant, and prices go up.

It ain't rocket surgery.

Honestly, if you wanted to design a policy that would just heap additional profits on oil companies, this would be a fantastic way to do it. As an added bonus, it totally screws over local governments, since they've already factored that tax revenue into their budgets.

This is plain ol' political opportunism. Politicians design these "tax breaks" so that they appeal to large swaths of the electorate, not because it's in the best interests of the country. They propose tax cuts for the elderly, the 'middle class,' so on and so forth because it bolsters their chances at being elected. They take advantage of the fact that most people-- even many highly educated people-- aren't terribly familiar with economic theory and the nuances of public finance. If anyone wants to know why our tax system has because a mess of labyrinthine inefficiency, this is a pretty good illustration.

UPDATE: Hillary Clinton just decided that the gas tax holiday was not a really dumb idea. So she's jumped on the band wagon and is also supporting this really dumb idea. Nevermind the fact that Clinton, who presents herself as a friend of the environment, is clearly encouraging more gas consumption. Obama is opposing the tax, for the same exact reasons I noted above (unequivocally proving that he reads my blog). Clinton responded by saying that Obama is out of touch with ordinary Americans. I would respond by saying that, in designing her economic policy, Clinton is out of touch with economics.

As you can see here, it seems like economists of all stripes have reached a rare consensus on this matter.