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When I was at the gym this evening I saw a story on the TV about a proposed “Gas Tax Holiday” for the summer driving season. Since I was too far away to read the subtitles I looked into it a bit once I got home. I found a nice article written by Nick Timiraos of the Wall Street Journal.

In the article titled “Will Voters Accept Obama’s Gas Plea?” we learn that Senator John McCain has proposed an elimination of the Federal Gas Tax from Memorial Day to Labor day. This would eliminate the 18.4 cent per gallon tax on unleaded fuel. Senator Hillary Clinton also supports this proposal. Senator Obama decided to take the rational approach and oppose this “holiday.”

The article suggests that Obama’s choice to oppose this tax relief act should put him in a “politically treacherous position.” The main reason for him being in troubled waters is because US consumers are fed up with high gas prices. The fact that he opposed a reduction in the price of gas could cause many people who were going to vote for him to vote for someone else.

This image was linked from opentravelinfo.com.

Politically, this move by McCain and Clinton is genius. At an average price of $3.60/gallon, the discount only amounts to a little over 5%. In reality that isn’t much to brag about, but the average person doesn’t look at it this way. To put this in simpler terms, in order for someone to save $100 in gas during this time period they would have to consume 543 gallons of fuel. At an average rate of 20 mpg, one would have to drive 10,860 miles over this three month span. If you annualized this mileage, it would be a pace of 43,440 miles for the year! Most leases penalize you if you drive over 36,000 miles over the course of three years!

“Obama has been positioning himself as a candidate who can win by telling voters hard truths rather than offering easy political solutions.” The easy political solution is to cut taxes for a short while to make consumers happy. In the end, a Gas Tax Holiday may be even more detrimental to the price of gasoline. In advertisements to Indiana and North Carolina voters, Obama makes the lack of savings crystal clear to voters. “You’re going to save about $25, $30, or half a tank of gas.” Although this doesn’t quite seem right, don’t forget to take my $100 in savings equation into consideration and then do the math. The savings are few and far between.

The only problem with Obama’s claim is that the average voter will likely think that they are saving a lot at the pump each time, but in the end this will not be the case entirely. When the price goes down by the amount of the tax, people will start to believe that gas has become much cheaper to them. As they think this, they will be more inclined to purchase even more gas. If the supply of gasoline is held at a constant rate and demand increases, then prices will naturally rise in order to reach equilibrium. This rise in price should offset whatever savings the consumer felt that they had saved from the lower prices.

One major option to reduce the amount of gas consumed each day is to increase gas taxes. The increase in taxes will raise the prices, and will cause demand to be reduced. Of course, no politician could ever run on the platform of increasing the gas tax by exorbitant amounts. That would eliminate any chance whatsoever of being elected.

In my opinion, something must be done to help wean the US off of our gasoline addiction. I believe that higher gas taxes, and/or increased toll roads would help promote more awareness on the issue. The funds from these taxes would be used to fund more mass transit options rather than improving existing roadways.

It should be interesting to see how the public reacts about Obama going the opposite direction on such a delicate issue such as this. A poll found in the New York Times shows just how the nation feels about gas taxes. It is obvious that Americans think wallet first, environment second.