Gax Tax Cut: Good Idea or Waste of Time?

by George Kilantonis

Republican Presidential Candidate and Arizona Senator John McCain has proposed that Congress suspend the tax on gas during the summer in the hopes of lowering prices and making it easier for Americans to fill their tanks without paying an arm and a leg.

On the surface, this looks like a good idea. However, lower gas prices might entice people to drive more and use more gas, thus increasing the quantity demanded. Since refineries are limited in how much gasoline they can produce, without building more refineries an increase in the quantity of gasoline demanded would lead to a shortage, and gas prices would go right back up.

Thus, consumers would only get a very brief benefit, and once gas prices were back up due to the shortages caused by increased quantity demanded and a supply that cannot increase, the only people benefiting from the tax cut would be the oil companies themselves.

So, while Senator McCain’s proposal might sound like a great idea at first, in reality it probably would not work, due to the laws of supply and demand, and in fact could have the opposite effect from what was intended, leading to more high gas prices for consumers, and even more profits for the oil companies and refineries.

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