A Gas Tax Holiday: It Could Be Worse

As my co-blogger at Vox-Nova Katerina noted last week, Senators Clinton and McCain favor a temporary suspension of the federal gasoline tax, as a means of lowering voters pain at the pump. Senator Obama, by contrast, is opposed to such a measure, favoring instead a “windfall profits” tax for oil companies (Clinton favors a windfall profits tax in addition to the gas tax holiday, while McCain is opposed).

To say that economists aren’t supportive of Clinton and McCain’s gas tax holiday idea would be an understatement. Indeed, there wasn’t a single economist who appeared ready to defend the idea. Until now, that is. Yesterday’s New York Times contains an op-ed by Bryan Caplan, an econ professor at George Mason, arguing that considering the alternatives, the gas tax holiday is a pretty good deal:

[T]he tax holiday is a relatively cheap symbolic gesture that makes truly bad policies less likely. The main causes of high gas prices are probably factors beyond our control, like rapid growth in China and India and low real interest rates. But voters don’t want to hear this; they want politicians to “do something!”

During our last big energy crisis, in the 1970s, “something” turned out to be a salad of populist nonsense: price controls, rationing, windfall profits taxes, arcane loopholes and lots of lawsuits. That political response turned an inconvenience into a disaster.