On the gas tax holiday...

I was listening to NPR's All Things Considered program driving home from class today, and they had an economist on to talk about the proposed gas tax holiday. For those of you who might not have heard about this, Congress is considering passing a measure that would lift the federal excise tax on gasoline from Memorial Day through Labor Day. That tax usually adds about 18 cents per gallon to the retail price. In theory, this holiday would mean that during the summer driving months (when gas prices almost always increase), we would cut 18 cents per gallon from our cost of fuel.

But as always, that pesky reality rears its ugly head. As this economist mentioned, there are numerous problems with this idea.
1. Basic supply and demand: when prices decrease, demand increases, which means more people try to buy the same good. The reason gas prices increase during the summer is because more people are driving (all those fun family summer vacations) and there is a limited supply. (Additionally, the refineries have to work harder to make gas run cleaner to decrease pollution). So, if we lop this 18 cents off the price, people will be more likely to choose to drive rather than fly to their vacation destinations or just stay home; in the same vein, people who are now cutting back on their driving habits may pick them back up again. All this will put a strain on supply and the only way for the market to balance out is to increase demand. Thus the price will rise again anyway, and we won't be saving any money.

2. Even as we end up paying that high price though, we have lost $10 billion in revenue that the fed. govt. collects through this gas tax. That money goes to paying for highway, public transportation, and upkeep of things like bridges. As some of you are aware, the I-35W bridge in Minneapolis, MN (the area where I grew up) collapsed last summer. Our infrastructure is aging. This is something the government should be paying for - the last big infusion of govt. money and effort was the 1950s. (God bless the Cold War for creating the interstate system). However, without that $10 billion, how do we pay for these upkeeps/repair?

3. As much as I, as a consumer, hate high gas prices, the environmentalist in me knows that we need them. A lot of people in this country will talk about wanting to help the environment, but until it hits their wallet, there's little they will do. We are now finally starting to see people care about green living, changing their driving habits, looking for more fuel efficient cars, etc. Because people are demanding better mileage, companies like Ford and GM are finally starting to shift their fleets away from giant gas-guzzling SUVs and looking to hybrids and other fuel efficiencies. If prices go back down, people will go back to their old habits.

Now, there are still a lot of downsides to the gas prices and the government should consider how it can help people, especially in the domino effect of increasing food prices and the like. But a gas tax holiday is not the answer. John McCain and Hillary Clinton think it is, but frankly, they're wrong. In my view, the politicians who are supporting this move are simply pandering to voters who they assume are too lazy and/or stupid to think about the effects of this holiday. Let's hope the public proves them wrong.