Energy
'Gas-Tax Holiday' Would Be No Vacation
05/05/08 - 10:37 AM EDT
"It's a complete sham," said Len Burman, director of the Tax Policy Center, a non-profit tax policy research service in Washington, D.C. "There are serious problems facing the country, and it's distressing to have politicians use their bully pulpits to talk about this non-starter." Burman adds that the chance Congress will enact either of the proposals by Memorial Day is virtually zero. Consumers shouldn't expect to pay 18.4 cents less per gallon in the event of a gas-tax holiday, according to Jeff Perloff, an economist at the University of California, Berkeley. That's because the "tax incidence" -- those who ultimately pay for the tax -- is shared among numerous players, including refiners and producers. The government collects the federal gasoline excise tax from producers or refiners -- not directly from consumers. But only a portion of that tax burden, typically one-half to two-thirds of the 18.4 cents, is actually passed along to consumers in the retail price reflected at the pump. At best, consumers may save between 9 and 12 cents a gallon (only about $25 during the summer season for my car). But cheaper gas means people will use more fuel. And when demand increases, gas prices go up. As Perloff explains, "During the summer, many local refineries are close to being capacity constrained. If demand shot up because of a shift in demand due to removing the tax, that could drive the price up if the capacity constraint is hit."
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