Senator Hillary Rodham Clinton endorsed a plan yesterday to suspend the federal excise tax on gasoline, 18.4 cents a gallon, for the summer travel season. Clinton’s proposal was made on Monday as the price of gasoline hit a new record of $3.60 a gallon nationwide, and oil prices flirted with $120 a barrel.
Senator John McCain made a similar proposal two weeks ago, which was rejected by many industry analysts as defying basic economic fundamentals: reducing the price of gas would encourage more consumption. Since the time of McCain’s proposal, the average national price of a gallon of gasoline increased by 20 cents—an amount that exceeds the federal gas tax. The political prospects of getting Congressional approval of the plan are considered slim.
Senator Barack Obama, Clinton’s Democratic rival, said the summer gas tax break would save the average consumer no more than $30. Congressional analysts confirmed that figure. Mr. Obama previously dismissed Mr. McCain’s proposal as a “scheme.” Clinton and McCain are both trying to characterize Obama as out of touch with Americans struggling with higher gas prices. A McCain spokesman said, “It’s clear Barack Obama’s not strong enough to provide immediate relief at the pump.” The Clinton campaign is running television advertising in Indiana contrasting her approach on gas prices with Mr. Obama’s.
Ironically, the Bush Administration is siding with Obama. Dana Perino, the White House spokeswoman, said “it would be disingenuous and unfortunate for American consumers for them to be led to believe that there is a short-term fix” for high gas prices and energy dependence.
While the political candidates continue to use the 18.4 cent gas tax as a wedge issue, the outlook for oil supplies grows more dismal. According to basic economic principles, raising supplies, or lowering demand, are the only ways to reduce the cost of gasoline. The New York Times reported that Jeff Rubin, an analyst at CIBC World Markets, said oil prices might exceed $200 a barrel by 2012—a level which he believes could mean $7 for a gallon gasoline in the United States. Major producers outside the OPEC cartel, like Russia, Mexico and Norway, are having trouble increasing output, despite incentives to open the spigot at a time of high prices.