The voices of Tax Policy Center's researchers and staff
Props to Barack Obama for resisting the siren call for a summer gas tax holiday. In contrast, Hillary Clinton has clambered aboard John McCain’s free-lunch bandwagon, vowing to support the gas tax cut he first proposed a couple of weeks ago. Even worse, she’s now tied it to an energy company windfall profits tax so, as she says, oil companies would “pay their fair share to help us solve the problems at the pump.”
What she’s really done is propose the Internal Revenue Code version of a dog chasing its tail. She cuts a tax, adds another tax, and in the end everyone is back exactly where they started.
It would work like this: Clinton would cut the federal gas tax for a few months. Since refiners are already working at full capacity to produce gasoline and a gas tax cut will only boost demand, fuel prices will go up and largely offset the tax reduction. She says the Federal Trade Commission could make sure the tax cut is passed on to drivers, but I can’t imagine how that would work, short of price controls. In the end, consumers will be pretty much in the same place they started—with pump prices heading for $4.00. Refiners, on the other hand, would enjoy a windfall.
Since the gas tax is supposed to fund highway construction, the government would find itself without the money it needs to build roads. In 2006, the gas tax generated about $28 billion. A summer’s worth would be about $10 billion.
By proposing her tax on energy companies, Clinton seems to recognize the problems with the tax holiday. But her solution? It is a politically elegant stupid tax trick.
She’d take the windfall profits tax and pump it back into the highway trust fund. In other words, revenue from the new corporate tax would do nothing more than replace money from the gas tax--leaving the trust fund exactly where it started. We don’t know exactly what the windfall tax rate would be, or what companies would have to pay it. But, more or less, they’d be back where they started too. They’d raise prices at the pump, and then give their increased profits back to the government in higher taxes. None of this shell game would have any impact on pump prices.
So, in the end, Clinton would do nothing for consumers, nothing for road construction and nothing for producers and refiners. It is clever politics, of course, because it seems like she is cutting costs for cash-strapped drivers and making big bad oil companies pay. But then, when my dog chases her tail, she’s not accomplishing much either. She does seem to be having a good time, however.