In response to the high (and getting higher) price of gasoline, the presidential candidates Hillary Clinton and John McCain have proposed a federal "gasoline tax holiday" for the summer, when gasoline prices traditionally are at their highest.  The proposal, no doubt going nowhere in Congress and therefore somewhat of a campaign gimmick, has been met by skepticism by the general public (if polls are accurate, which is always debatable) and  economists, and downright scorn by various environmental groups.

The current federal gasoline tax stands at $0.18/gallon.  This is a straight per-gallon tax, not a percent of the overall price.  States add their own tax in, from a low of $0.075/gallon in Georgia to a high of $0.321/gallon in Wisconsin; some states add in additional sales taxes and wholesale taxes, further increasing the cost of gasoline, and of course the gasoline retailers, wholesalers, and oil production companies all pay income taxes, capital gains taxes, payroll taxes, and other costs imposed by the government in terms of regulation.  All this together means that the government collects more "profit" off of each gallon of gas than does the companies responsible for its supply.

Environmental groups favor higher-priced gasoline as a means of reducing overall consumption -- many have called for increases in gasoline taxes, stating that the current average price at this writing of $3.63/gallon is still too low, and that prices more in line with those in Europe are needed to promote conservation.  My guess is that the public would disagree with that assessment, particularly since gasoline prices hit the poorest citizens in any society the hardest -- older cars tend to have less fuel efficiency, and most poor people tend not to be able to afford a new hybrid Prius.

The economists and politicians have come out against the gasoline tax holiday for various reasons.  Some, like Alice Rivlin, who served in the previous Clinton Administration, cites the need for higher gasoline taxes in her analysis, and no doubt others fall into that camp.  Many favor anti-global warming carbon "cap and trade" taxes that are de facto increases on the price of all products that utilize petroleum in their production (or packaging, or transportation, which of course ultimately means all products whatsoever).

Other economists, however, employ a more rigorous analysis.  The gist of their opposition to the gasoline tax holiday centers around a couple of points.  First of all, the drop in price would increase demand for gasoline.  Of course, this is Economics 101 -- lower prices stimulate higher demand for a product.  However, subtracting 18 cents per gallon from a record high gasoline price still yields a near record price -- will demand be that much stimulated by a reduction to a price that was already spurring decreased consumption?

A second argument is that the oil companies will simply swallow up the reduction in the tax, meaning prices will stay the same and the oil companies will increase their already-record profits.  To combat this supposed scenario, Hillary Clinton is proposing a "windfall profits tax" on the oil companies.  I'd be interested in hearing of any example from any point in the history of any country where raising a tax on a specific industry has ever resulted in a lower price for any product -- if a company's tax burden is increased, to maintain a profit margin the company will either raise the price of its products to recoup the loss, or else they will look for other cost reductions -- layoffs, decreased investment in capital projects, lower dividend payments to shareholders.  None of these actions promote lower prices for consumers nor spur economic activity; the Clinton argument suggests that the government is a better provider of economic growth than are businesses.  But this argument also ignores another truth about a free market:  competition among businesses for the consumers' dollars promotes lower prices.  Would a retraction of the 18.4 cent gasoline tax result in an immediate drop in the price of a gallon of gasoline of 18.4 cents?  Probably not, especially if the dollar continues to weaken (which is a complete topic itself).  But competition and a return to Economics 101 point towards an overall reduction in price.

A third argument against decreasing the government's intrusion into the purchase of fuel is that because that gasoline tax is currently earmarked for the road construction fund, such a tax holiday will result in no roads being built.  This calamity would lead to loss in jobs, and many seek to paint a dire picture of crumbling infrastructure and bread lines for construction workers.  But this presupposes that the government could not simply cut spending in other areas and channel that money instead to continue those road projects.  It also ignores the state gasoline taxes, many of which have some percentage earmarked for construction.  But on a more philosophical level, such a view that cutting the gasoline tax would lead to lost jobs in the overall economy suggests that the government, not the private sector, is the engine of job growth in the economy.  Comparing job growth in the United States with those countries with a higher tax burden (and common sense) suggest otherwise.

A final argument against the proposal is that it is simply an election-year gimmick, a pander to voters.  On this issue, I have to agree -- it is a sort of gimmick.  However, I fail to see how this is any more of a "gimmick" that "panders" to voters than promising them free college, or free health care, or other supposedly "free" (read:  money is confiscated from someone else to pay for them) services from the government.  At least this so-called gimmick increases the amount of money that people keep to spend for themselves rather than turn over to the government rather than promising to confiscate money from one group of people to give to another.  It might be a small amount, even a small amount of money in the hands of individuals rather than the government is a good thing in my book.

Ultimately, I believe that the tax holiday should be enacted, so long as spending is cut in other areas to "pay for" the tax cut, providing the road tax fund with no reduction in revenues.  Perhaps a good start would be to repeal all earmarks in the budget; as we've seen, there are billions of dollars there to be cut, and roads are actually a valid function of government.  Ultimately, I cast my lot with the great Nobel Laureate Milton Friedman (yes, he is an economist):  ""I favor tax reductions under any circumstances, for any excuse, for any reason, at any time."  It's our money, not the government's -- they should have to beg for every penny, not the other way around.

A favorite rhetorical nemesis during the current campaign for the US Presidency is the concept of free trade agreements. With its advantages and benefits well established from Adam Smith's Wealth of Nations, through various of the Federalist Papers, to the writings of Friedrich Hayek and Milton Friedman, concepts such as comparative advantage and economy of scale inherent to freer trade with less government intrusion on the marketplace are well explained and the benefits well documented.