Our guest blogger is Sam Davis, Policy Analyst at the Center for American Progress Action Fund.
Sen. John McCain (R-AZ) has a prescription for the country’s gas woes, proposing to put the 18.4 cent federal gas tax on a three-month hiatus between Memorial Day and Labor Day. Indeed, we’ve heard this idea once before and economists continue to be weary of its intended net effect. What’s different this time however, is the spin and the reality.
Spin: Outlining his proposal, Senator McCain said last Tuesday, “The effect will take a few dollars off the price of a tank of gas every time a family, a farmer, or trucker stops to fill up.”
Reality: Most of the tax break will go to corporations, not families. Oil companies and their executives are already doing better than ever. Two years ago, Lee Raymond, former CEO of Exxon was given a severance package worth upwards of $400 million after leading the company to its highest ever recorded profit in 2006 of $36 billion. The previous year, his salary and bonus was a combined: $69.7 million or $190,915 a day. After just his first year on the job, current Exxon CEO, Rex Tillerson oversaw another record profit year for the company of $40 billion, earning him $21.7 million or $59,452 a day.
Even if all of the benefits from the tax breaks go to families, however, it will make little difference for them. The median American family’s daily savings during the three-month tax holiday proposed by Senator McCain? 60¢.
Spin: McCain told CNBC this past Tuesday, “I think high gas taxes are a regressive tax. The people who drive the furthest are the lowest income Americans. It is incredibly regressive. Where’s the fairness there?”
Reality: Not only do families who make less, drive less, they do not consume more gasoline nor do they spend more on gasoline. An analysis of the latest available data reveals that in fact, Senator McCain’s “gas-tax holiday” idea is itself regressive. The more a family earns, the more they drive, and the more a higher-earning household would save under Senator McCain’s plan.
Methodology: The Energy Information Administration, Household Energy Use: Latest Data & Trends, September 2005, table A-2, provides a breakdown of household income and their respective annual gallons of gasoline consumption and miles driven. Taking each respective annual gallon of consumption, we calculated the monthly consumption and multiplied each gallon by the current average price of regular gasoline ($3.39). At which point, we subtracted the 18.4 cent tax from each gallon for the month and calculated the savings from the tax cut per month than multiplied that number by 3 for the number of months Senator McCain’s tax holiday would be in effect.