I don’t know any prominent economist who favors this McCain-Clinton proposal. More common is the reaction of a friend of mine (a veteran of the Clinton administration) who calls the idea “ludicrous.”
Senator Hillary Rodham Clinton lined up with Senator John McCain, the presumptive Republican nominee for president, in endorsing a plan to suspend the federal excise tax on gasoline, 18.4 cents a gallon, for the summer travel season. But Senator Barack Obama, Mrs. Clinton’s Democratic rival, spoke out firmly against the proposal, saying it would save consumers little and do nothing to curtail oil consumption and imports. While Mr. Obama’s view is shared by environmentalists and many independent energy analysts, his position allowed Mrs. Clinton to draw a contrast with her opponent in appealing to the hard-hit middle-class families and older Americans who have proven to be the bedrock of her support. She has accused Mr. Obama of being out of touch with ordinary Americans who are struggling to meet their mortgages and gas up their cars and trucks … Mrs. Clinton said the tax on the oil companies, which have been reporting record profits as oil prices soar, would cover all of the lost revenue from the federal tax on gasoline and diesel fuel. She also said no highway projects would suffer.
Some economists have argued that the incidence of the tax break would go entirely to the oil companies so Senator Clinton’s remark that Senator Obama is “out of touch with ordinary Americans” is just silly. But we should add that this view of the incidence of the tax break would suggest that consumers would not consume more gasoline. Another view is that the incidence is evenly split between consumers and suppliers, which would imply that the consumer would get a whooping $0.09 per gallon off of his gasoline bill as the oil companies get the other $0.09 a gallon. OK, but as Greg notes this means we’ll be consuming more imported oil and adding to pollution. Plus the fact that this tax holiday would add to the Federal debt.
But didn’t the Clinton version of the McCain gasoline tax holiday promise to make up for the lost tax revenues by taxing the oil companies? OK, then we should again think about the incidence of the tax question. How much of Clinton’s tax on the oil companies would be passed onto consumers? Talk about being out of touch!
Update: Paul Krugman comments on the McCain-Clinton “gas tax follies”:
John McCain has a really bad idea on gasoline, Hillary Clinton is emulating him (but with a twist that makes her plan pointless rather than evil), and Barack Obama, to his credit, says no … The McCain gas tax plan is a giveaway to oil companies, disguised as a gift to consumers. Is the supply of gasoline really fixed? For this coming summer, it is … The Clinton twist is that she proposes paying for the revenue loss with an excess profits tax on oil companies. In one pocket, out the other. So it’s pointless, not evil. But it is pointless, and disappointing.