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: Read more

Our guest bloggers are Robert Gordon and James Kvaal, fellows at the Center for American Progress Action Fund.

John McCain has proposed to let corporations immediately deduct (or “expense”) the full cost of equipment and technology purchases, rather than deducting the costs over time. We analyzed this proposal several weeks ago and concluded that it would cost $745 billion over the next 10 years.

The McCain campaign and its top economic advisor, Dr. Douglas Holtz-Eakin, are now saying that this central provision of his corporate tax cut will cost taxpayers nothing. But the Congressional Budget Office, when led by Dr. Douglas Holtz-Eakin, reached the opposite conclusion.

The McCain campaign is claiming this measure is free because Treasury will lose money at first, then recoup it over time.

On its face, this doesn’t make a lot of sense. We all know $100 today is worth more than $10 a year for 10 years. And McCain is saying his plan will increase investment — how could that be if his plan has no cost to the Treasury?

In the past, Holtz-Eakin has recognized that expensing costs money. He signed a cost estimate for making permanent a provision of the 2002 stimulus package that allowed companies to expense 50% of their costs. The estimate is the last line on page 92 here, reproduced below:

This estimate shows that allowing companies to expense 50 percent of new investments would cost $440 billion over 10 years. And the costs are still very high, nearly $30 billion, 10 years after the provision is made permanent. McCain’s proposal for 100 percent expensing would be even more expensive.

If Holtz-Eakin was right then, how can he be right now?

Sen. John McCain’s (R-AZ) “pandering” proposal for a “gas tax holiday” is smart politics but bad policy. A few months ago, Sen. McCain seemed to understand that.

When asked at the January 10, 2008 GOP debate what the government should do to respond to the looming recession, McCain responded:

We need to stop the spending. And that way we can get our budget under control and we can have a — basically a strong, fundamental fiscal underpinnings.

The second thing that we need to do, of course, is stop spending $400 billion a year overseas to oil-producing countries that come right out of our economy immediately. Some of that money goes, unfortunately, to fund terrorist organizations.

We’ve got to — and we can use Detroit for this, where there’s tremendous technology in the state of Michigan, and tremendous abilities to develop technologies to reduce this dependency on foreign oil, and eventually eliminate it, and stop this outflow of some $400 billion a year. Education and training is obviously important, but stop the spending.

How does McCain’s proposal to suspend the federal gas tax from Memorial Day to Labor Day violate those precepts?

McCain’s Holiday Would Cost $11 Billion. Suspending the gas tax — whose revenues are fully dedicated the federal highway trust fund that maintains our crumbling infrastructure — for three months would cost $11 billion. McCain has not said how — or if — he would replace those revenues. [CAPAF, 4/15/08]

McCain’s Holiday Sends More Money ‘Out Of Our Economy Immediately.’ The Wall Street Journal notes “Many economists have also questioned the wisdom of suspending or cutting gas taxes; doing so, they say, simply stimulates more consumption of gasoline.” In McCain’s own words, that increased consumption would send more money “out of our economy immediately” to oil-producing countries, “unfortunately, to fund terrorist organizations.” [WSJ, 4/15/08]

Cutting Transportation Investment Kills Jobs. The Wall Street Journal asked: “Relief — or fewer jobs? According to a white paper circulated on Capitol Hill last week by the U.S. Transportation Department, every $1 billion of federal highway investment supports 34,779 jobs.” McCain’s plan could put over 300,000 workers on an unpaid “holiday.” [WSJ, 4/15/08]

McCain’s Holiday Threatens ‘Fundamental Fiscal Underpinnings.’ McCain spokesman Brian Rogers said “general revenue transfers” would pay for the “holiday” — increasing the budget deficit by $11 billion. As Matthew Jeanneret, a spokesman for the American Road & Transportation Builders Association, says: “It might be good politics. But it is shortsighted, and it won’t do anything to stimulate the economy.” [MSNBC, 4/15/08]

McCain’s plan would push gas prices up and force policymakers to choose between killing jobs and infrastructure investment or blowing up the budget.