A Gas Tax Holiday Is An Awful Idea

Photo by Bryan P.M on Unsplash

Whenever we hear something like ‘tax holiday’, it sounds like a good idea. Who likes taxes? However, that is not what is going on with the gas tax holiday. The tax holiday is being proposed as a relief to consumers because of inflation.

The reality is that a gas tax holiday would just make things worse. It would encourage people to consume more oil, which doesn’t help the oil supply. You’ve probably heard that the cure for high prices is high prices. Higher prices discourage consumption, and high prices encourage suppliers to produce more. That’s the function of prices, so it’s not as if prices don’t serve an important function.

So far, I’m just assuming that the tax holiday will be temporary; however, we all know there’s nothing more “temporary” than a government program (i.e. permanent). If the tax holiday is not permanent, then voters will not be happy once the tax is re-implemented. Because of that very fact, it’s not clear that such a tax holiday would be temporary (because politicians don’t want to anger their voters).

Photo by The New York Public Library on Unsplash

Beyond that, a gas tax holiday doesn’t get to the root of our problem. The root of our problem is not a shortage of oil, a shortage of semiconductors, or anything of the sort. The reality is that we have a surplus of dollars. When you print money, the price of everything goes up. The solution is to stop printing money. I would go further and say that the Federal Reserve needs to shrink the money supply and increase interest rates to the moon. No doubt, some will disagree with the former (because they think monetary deflation is the worst thing ever conceived). But desperate times call for desperate measures.

Beyond that, a tax holiday (for gas) wouldn’t even offer that much relief. So not only are you not fixing the inflation problem (or fixing gas prices specifically) but there also isn’t that much benefit. And any potential benefit would be swamped by the plausible outcome that oil prices just keep going up. Also, as I said before, not only are you not fixing the inflation problem that we have, but you would actually be making the problem worse–if one were to implement a gas tax holiday.

There are no easy fixes to our inflation problem…any solution is going to involve some pain.