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Analyzing the McCain Gas-Tax Holiday Plan


This is WEEKEND EDITION from NPR News. I'm John Ydstie.

Coming up, Washington state's ferry system is getting creaky. But first: As part of his broader economic plan, Senator John McCain has proposed suspending the federal gasoline tax from Memorial Day through Labor Day to help ease the impact of soaring fuel prices. The idea has received mixed reviews.

Paul Roberts is author of "The End of Oil." He joins us from member station KUOW in Seattle. Welcome to the program.

Mr. PAUL ROBERTS (Author, "The End of Oil"): Good to be here.

YDSTIE: So gasoline is hovering around $3.50 a gallon for regular. Would dropping the federal gas tax - 18.4 cents a gallon on gasoline, 24.4 on diesel - bring prices down, or are there other factors that are going to complicate that?

Mr. ROBERTS: Well, on paper it certainly would, but, you know, the fact is as soon as something gets cheaper, consumers tend to use more of it. In terms of the actual sort of fiscal effect, this is tiny. It's like 5 percent.

YDSTIE: Well, are there other ways to relieve the pressure of high fuel prices on people who are hurt most? Who can least afford to pay these prices?

Mr. ROBERTS: Keep in mind that, you know, there have been proposals to give a gas-tax holiday for years. This comes up every time fuel prices spike. There's nothing you can do, really, in the short term to give people price relief. That is kind of a market-based mechanism.

You could give rebates to poor people. You could find ways to give them direct tax credits. But in terms of a quick way to give people price relief, you know, you're probably better off encouraging people to inflate their tires to the proper air pressure, you know, and thereby increase their efficiency, their efficient operation. You're probably more likely to affect prices that way than you are by cutting an 18-cent-a-gallon tax.

YDSTIE: One of the things that a number of economists have suggested, including a former chairman of the Council of Economic Advisors under President Bush, is essentially raising gas taxes, and at least the signals to the market would be that you shouldn't be using so much of this precious resource, and we wouldn't be sending so much money to foreign producers. We would be sending them into the U.S. government's tax coffers. Is that the kind of proposal that you think makes sense?

Mr. ROBERTS: It's - absolutely. I mean, your whole tax policy should be based on encouraging the activities you want more of and discouraging the activities you want less of. In this case, we want less consumption of oil, and we want more research into alternatives to oil.

Imagine if after 9/11, when the country was in a very patriotic mood - and I think in a mood to shoulder sacrifice - imagine if President Bush had said look, you know, we need to be serious about reducing our need for oil because using so much foreign oil, importing so much oil has all these negative consequences. And I think he could have convinced people that we needed even a modest tax, maybe a tax that rose gradually over time.

And the advantage of putting a tax on fuel at that time would mean that even if we were paying today $3.50 a gallon, the money would have stayed here. We could've used the money to fund new technologies, improve our highway infrastructure, all kinds of positive, long-term beneficial investments instead of sending the money overseas.

Instead, what's happened is that we're paying $3.50 a gallon for gasoline, and almost all that increase is going to places like Iran and Russia, and the money's being used for projects that are not necessarily in our interests.

YDSTIE: What policies should we be thinking about for the long term?

Mr. ROBERTS: We need to really encourage not just one or two new technologies to replace, you know, the sort of oil-based internal combustion engine but a whole portfolio of them. And the reason we need to do a whole portfolio is that one or two or three of them are going to fail.

For all the focus that we have on ways to replace oil, we need to simply find ways to use less. I mean efficiency, conservation, is the single most effective way to improve your energy security, and yet as a policy area it's the one that we neglect, you know, most frequently.

This country has had no meaningful increase in fuel economy for more than two decades. You know, we're talking about it now, but again we're talking about rolling that improvement in fuel economy out over a number of years.

Until we get serious about reducing demand, we're going to be having these kinds of conversations every few years.

YDSTIE: Paul Roberts is the author of "The End of Oil." He spoke with us from member station KUOW in Seattle. Thanks very much.

Mr. ROBERTS: Thanks. Transcript provided by NPR, Copyright NPR.

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