A couple of weeks ago, John McCain, in a high-profile speech, unveiled his response to the mortgage crisis. After it was universally panned as a bad joke, McCain scrapped his own proposal and tried again. Considering the Republican candidate's admission that he doesn't understand economics, it was an inauspicious start to unveiling his economic policy agenda.
Yesterday, McCain took the next step, presenting his agenda on taxes. Yesterday's presentation left much to be desired, but it's that "gas-tax holiday" that has everyone scratching their heads.
As a matter of politics, it sounds like a possible winner: over the summer, when demand is at its peak and gas prices are on the rise, McCain wants to shave 18.4 cents off the price of a gallon of gas by temporarily waving federal taxes. It would cost $11 billion a year.
This is, however, a remarkably bad idea.
The federal gasoline tax represents a flat fee of 18.4 cents a gallon nationwide. With gasoline currently averaging $3.39 a gallon, the tax represents a mere 5 percent of today's pump price. While that's not trivial, consider that gasoline prices have more than doubled since 2004.The problem is that lowering gasoline prices at the pump would encourage more consumption. So in the long run, it would push prices up.
For that matter, federal gas tax revenue goes towards rebuilding and maintaining roads and highways. Cutting the gas tax would mean less investment in infrastructure -- a very dangerous approach right now -- and fewer jobs.
So, the provocative centerpiece of McCain's big, new tax idea stimulates gas consumption, raises the price of fuel, undermines his own environmental agenda, weakens U.S. infrastructure, and would cost thousands of jobs.
McCain recently acknowledged, "The issue of economics is not something I've understood as well as I should." If only he didn't seem so anxious to prove it, I might have a little more confidence in his competence.
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