Miami Student

Issue date: 4/22/08 Section: OpEd Page

A "tax holiday" is possibly the rosiest term I have heard in a while. I relish in the thought of being given a break from paying income taxes ... Of course that is not the plan Sen. John McCain (R-Ariz.) has proposed. The suspension of the gas tax that the future Republican nominee for president proposed is sure to garner the lions share of media attention until the squabbles of the Democratic candidates retake the spotlight.

The proposal at first glance appears to be a good one, as gas prices are soaring (the price of oil hit an all-time high at $113.93 this week) and will only increase during the summer months when families schedule vacations, agricultural production is at its height and car-hungry teens are granted a reprieve from school to spend the summer months tearing around town binging on their newfound independence. Taking this into consideration, as well as the fact that the vast majority of U.S. freight transportation remains in the hands of the trucking industry and commercial transportation significantly depends on airlines and personal automobiles, a suspension of the 18.4 cents per gallon federal gas tax stands to save consumers and corporations billions of dollars ... or does it?

The price of oil, like all commodities in a free market system is based on supply and demand. A reduction in the price of gas by the rather significant amount of 18.4 cents per gal, therefore, stands to increase demand by a relatively congruent amount. Furthermore, witnessing this tax cut, OPEC-always considerate of the U.S. consumer-will seize the moment to squeeze supply and pad profits just like they do every summer. This means greater funding for the friends of Iran, Saudi Arabia and Venezuela to name a few.

Additionally, the United States is currently engaged in a war in Iraq that costs over $340 million per day. We are in the middle of a "credit crunch"-that the government now wants to provide bailouts for-and appear to be headed for a recession. McCain has been one of the most ardent supporters of avoiding tax cuts in conjunction with significant by increasing government spending, in this instance he is deviating from the path. The fiscal and monetary solutions to the credit crunch thus far have been to inject steadily increasing amounts of liquidity into the market. However, the inevitable result of such policies is a significant devaluation of the dollar (which we have painfully been privy to over the past several months). This devaluation in turn makes imports more expensive, oil prices unstable and high, as well as decreases consumer confidence levels. This is to say that a small increase in the liquidity levels may have been in order when the credit crisis hit, but the continued slashing of interest rates has become a defeatist strategy. To couple it with further tax cuts while increasing spending to aid ailing credit agencies would demonstrate our government's woeful ignorance of economic process.

In the end, the reduction of the federal gas tax will have little effect but to increase the current budget deficit by another $8-10 billion. Most likely, the increase in demand that will immediately result from the decrease in price will-if we are lucky-trigger an increase in production that will see prices equalize to what they would have been even with the gas tax. More than likely, OPEC will utilize the tax cuts to squeeze demand and pad their pockets. Though the tax cut was a solid political move and demonstrates that McCain does care where the economy is going, it seems more a reactionary measure than thoughtful solution. If he wants to be president he ought to hop back on his horse of true fiscal conservatism, reign in spending and work towards weaning this country off its oil dependence. For our part, we are just going to have to suffer gas at $4 per gallon.

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