2 of 3 Presidential Hopefuls Back Gas Tax Holiday

One of the hot topics on the presidential campaign trail this week has been whether to institute a gas tax holiday this summer. Both John McCain and Hillary Clinton are backing the proposal. Barack Obama calls it a gimmick.

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STEVE INSKEEP, host:

It's MORNING EDITION from NPR News. Good morning. I'm Steve Inskeep.

We're about to check up on a plan endorsed by two of the three presidential candidates to lower gas prices.

Senator HILLARY CLINTON (Democrat, New York): I would immediately lower gas prices by temporarily suspending the gas tax for consumers and businesses.

(Soundbite of applause)

Senator JOHN MCCAIN (Republican, Arizona): The effect will be an immediate economic stimulus, taking a few dollars off the price of a tank of gas every time a family, a farmer, a trucker stops to fill up.

INSKEEP: You know the voices by now - Republican John McCain, Democrat Hillary Clinton. They both want to suspend, they say, suspend the 18 cent per gallon federal gas tax this summer between Memorial Day and Labor Day. This is worth discussing more fully, because Barack Obama chose to oppose a gas holiday.

Senator BARACK OBAMA (Democrat, Illinois): Here's the problem. Not only is it worth 30 cents a day to you, but it takes money out of the federal highway fund that goes to rebuilding roads and bridges. And without that money you could have thousands of fewer jobs here in Indiana and our roads and bridges won't be safe. But here's the most offensive thing about it, is it's a gimmick.

INSKEEP: That's Barack Obama campaigning in Indiana, which holds a critical primary on Tuesday. And let's check our facts now with NPR's Scott Horsley, who's going to take us through the pros and cons.

And Scott, how much of a break would this really be for consumers?

SCOTT HORSLEY: Well, Steve, the federal gas tax is 18 cents a gallon - 24 cents for diesel fuel - so as John McCain says, it might add up to a couple of bucks, three bucks on a fill-up. It's not guaranteed that consumers would see all of that, though, because refiners, whose profits have been squeezed this year by high oil prices, might take advantage of the falling taxes to add a few cents for themselves.

But even if you assume consumers get the whole 18 cents a gallon, you're talking maybe 25, $50 over the course of the summer. John McCain called it a nice little break for Americans. In the two and a half weeks since he first floated this idea in Pennsylvania, gasoline prices have already risen more than 20 cents a gallon. So this could be easily overwhelmed by market forces.

INSKEEP: Does anybody think - because you mentioned those market forces - that the 18 cents per gallon actually affects the price of gasoline at all?

HORSLEY: It certainly is one of the factors in there. You know, the companies - the oil companies and the retailers are not going to take a loss on that 18 cents - so it's going to be passed along. The question is if you take away the 18 cents, do all the savings flow directly to consumers?

INSKEEP: Well, now, let's talk about where this money normally would go if it was collected over the summer. Barack Obama says, hey, we're supposed to build highways with this. Do McCain and Clinton have a way to make up the lost revenue?

HORSLEY: Hillary Clinton would like to backfill this with a tax on oil companies. They're always an easy target, and just yesterday Exxon Mobil reported quarterly earnings of nearly $11 billion. That's more than a loss in tax revenue would be. John McCain has not said exactly how he would fill the pothole in the highway fund, but he said he would make unspecified cuts elsewhere in the budget.

INSKEEP: So does Barack Obama have reason to call this a gimmick?

HORSLEY: Yes, in the sense that suspending the gas tax doesn't do anything to address the long term energy challenges. There is broad consensus among economists who understand the energy markets that lifting the gas tax during this summer is not a good idea from an economic point of view. Now, from a political point of view it might be a different story.

INSKEEP: Well, if consumers only get a small break, if the long term problems won't be addressed, what effects will there really be?

HORSLEY: The biggest complaint is that this would send the wrong signal to consumers and encourage them to drive more. For years now, the rising price of oil and gas have been telling us, look, these are precious commodities. They're in great demand worldwide, in limited supply. We ought to use them wisely. Economists would say the rising prices are like the check engine light coming on on the dashboard, and to lift the gas tax would just put a piece of black tape over the warning light.

INSKEEP: Given that neither of the candidates who wants this tax holiday is president right now, is there any chance it'll actually be enacted by this summer?

HORSLEY: Very slim. Our reporters on Capitol Hill tell me there is no enthusiasm for the tax holiday among lawmakers, except for two of the three who are running for president.

INSKEEP: NPR's Scott Horsley. Thanks very much.

HORSLEY: My pleasure, Steve.

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