McCain's gas tax cut draws fire

Skeptics say it will do little to reduce prices and stimulate the economy, and could leave road projects unfunded.

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By Steve Hargreaves, CNNMoney.com staff writer

Should the federal gas tax of 18.4 cents per gallon be suspended?
  • Yes
  • No
  • Neither - the tax should be raised

NEW YORK (CNNMoney.com) -- Amid record gas prices and a faltering economy, Sen. John McCain called for suspending the federal gas tax Tuesday - a call that was met with skepticism from many experts.

In a wide ranging economic speech at Carnegie Mellon University in Pittsburgh, the presumptive Republican presidential nominee called for a hiatus in the 18.4 cent-a-gallon federal gas tax from Memorial Day until Labor Day - the period when vacationing Americans spend the most time on the road.

"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, or trucker stops to fill up," said McCain.

He also said the government should stop filling the Strategic Petroleum Reserve - a vast labyrinth of underground salt caverns in Texas and Louisiana that hold upwards of 700 million barrels of oil.

"This measure, combined with the summer-long 'gas-tax holiday,' will bring a timely reduction in the price of gasoline," said McCain.

Assuming the average gas tank holds 13 gallons, removing the gas tax would save drivers about $2.35 every time they filled their tank.

The federal government collects about $38 billion a year in gas and diesel taxes, with state and local governments bringing in about $78 billion more, according to the Federal Highway Administration.

Most of the money is used to fund highway projects. Suspending the gas tax during the summer would leave a funding gap of about $10 billion.

Analysts criticized the proposal for doing little to either stimulate the economy or lower gas prices, and say it could potentially leave roads in disrepair.

"It's a quick fix for people who believe cheap gas is their birthright," said Tom Kloza, chief oil analyst at the Oil Price Information Service, a research firm. "It's not a prudent thing to do."

Kloza said the amount of money motorists would save would do little to stimulate economic growth, and said the revenue from the gas tax is much needed for road repairs.

He also said reducing demand is one of the best ways of lowering gas prices, and suspending the gas tax may encourage motorists to drive more - a move that would certainly benefit the oil companies.

"Look, somewhere down the road you have to use less," said Kloza. "As painful as it might be, higher prices do sway behavior toward a more energy disciplined America."

A House Democratic staffer also criticized the proposal, largely on the grounds that state transportation departments may not be able to cover the loss in funding and construction projects would be suspended.

"If you turn that off, a lot of construction projects won't take place and a lot of people will be put out of work," said Jim Berard, a spokesman for the House Transportation and Infrastructure Committee.

The McCain campaign, in a conference call after the speech, said the lost revenue would be paid for by money from the general fund, and that staffers were currently drafting a bill. Berard said that with an economic stimulus package already approved, and a large budget deficit, he wasn't sure Congress would shift money from the general fund into the highway fund.

If money from the general fund is used, it could in some ways be a fairer tax. The gas tax is a flat tax that impacts poor people more than rich ones, while money from the general fund is raised in a system where people who earn more are supposed to pay more.

James Kvaal, a fellow at the Center for American Progress, a liberal think tank, said this tax cut is better than some of the of the others that McCain has proposed. Nonetheless, Kvaal expressed some concern about where money for infrastructure costs will come from but said that this cut "will help some families that are facing higher energy costs." To top of page

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