John McCain proposed a temporary repeal of the 18 cent per gallon federal gas tax over the summer, when gasoline demand peaks. The idea is that it would give consumers some relief from high gas prices at a time when prices tend to peak. Hillary Clinton jumped on board, but realising that taxes on gasoline are used to build and repair roads and bridges, proposed that the revenue shortfall be made up through taxes on windfall profits by the oil companies. Apart from making only a trivial difference to most consumers as envisioned, ($3.60 if you buy 20 gallons of gas), Saurabh explains why consumers are unlikely to see the full 18 cent reduction in prices.
Only Barack Obama has said something sensible on this issue – that these are short-term measures that do more harm than good (road construction, for example, generates a lot of jobs). But none of them seem to have mentioned one key point – higher prices are good, because they reduce demand. The higher prices of the “summer driving season” are due to the fact that people do a lot of driving in the summer. The increase in consumption also increases greenhouse gas production. Higher prices reduce demand, which, in turn, should moderate the spike in gas prices. Higher prices also push consumers towards smaller, more fuel efficient vehicles.
It makes me wonder whether anyone has tried to determine what effect a repeal of the gas tax is likely to have on gas prices. I wouldn’t be surprised if it resulted in higher gas prices. It definitely will have a bad effect on greenhouse gas emissions.