John McCain wants the federal government to free people from paying gasoline taxes this summer and ensure that college students can secure loans this fall, a pair of proposals aimed at stemming pain from the country's troubled economy. At the same time, the certain Republican presidential nominee says Democratic rivals Barack Obama and Hillary Rodham Clinton would impose the single largest tax increase since World War II by allowing tax cuts pushed to passage by President Bush to expire." Both promise big 'change.' And a trillion dollars in new taxes over the next decade would certainly fit that description," McCain said in remarks prepared for delivery Tuesday. "All these tax increases are the fine print under the slogan of 'hope:' They're going to raise your taxes by thousands of dollars per year -- and they have the audacity to hope you don't mind." That was a play on the title of an Obama book.
Greg calls this news bad news for the Pigou Club. It certainly represents McCain’s desire to pander to the average Joe. But shouldn’t we remind McCain of something Milton Friedman said: “to spend is to tax”. McCain just wants to have more deferred taxes in the form of continuing high Federal deficits. I know this is the modern GOP playbook to winning elections, but it is a terrible way to run a nation’s finances.
Update: Greg in an update brings us an analysis from Len Burman and Eric Toder that notes that suppliers would capture most of the gasoline tax reduction with little accruing to consumers. Jared Bernstein agrees:
the gas tax holiday is smart politics but lousy policy. As Taplin aptly described, high gas prices are sending an important economic signal and jamming that signal is ill-advised. On the other hand, as one of the commenters points out, this idea could really help some strapped families. The problem is there's absolutely nothing to stop the oil companies from claiming a big chunk of this subsidy by raising the pretax price of gas at the pump. Prices go up in the summer anyway, and I'll bet you a gallon of premium that they go up even more than usual, such that some of that 18.4 cents/gallon ends up back in Exxon's wallet, not yours. Which leaves us with a nice little transfer from taxpayers to oil companies. Nice work, John.
Jared discuss other aspects of McCain’s fiscal proposals that we should really worry about.