Gas Taxes, Meet Econ 101

McCain and Clinton want a summer cessation of the gas tax. Obama says that it is political pandering and won't help people who are hurting at the pump.

Obama is right.

When the short-term demand for a good is inelastic (meaning: short-term demand is relatively unresponsive to variations in price), as the demand for gasoline is, then a reduction in taxes will lead immediately to increased consumption until the price of gas once again reaches the market-clear price. In other words, if the gas tax is suspended the price will fall. When the price falls, people will buy more gas. Because of the increase in the quantity of gas demanded, the price will go right back up to its pre-tax-suspension level.

However, the quantity of gasoline demanded will increase if the tax is suspended. So such a policy would essentially be a hand-out from taxpayers to oil companies, with the added cost of environmental degradation and an increase in carbon emissions. 

In short, it's a remarkably stupid policy proposal. Obama should be commended for refusing to pander when given such an easy opportunity. He is losing ground in the polls for the sake of intellectual honesty, while Clinton and McCain are gaining cheap points by preying on peoples' ignorance. So good for him, and bad on them.

(P.S. This economic intuition is a fundamental assumption for members of the Pigou Club. If you share their goals and ethical assumptions, then it's easy to share their conclusion that gas taxes should be significantly higher; not lower.)

UPDATE:

Bryan Caplan likes the idea. But not for the same reasons as Clinton. His support is of a more cynical nature: he thinks that lowered taxes will preclude price controls, which he views as a greater evil, and in any case he thinks that eliminating the taxes won't have any strong negative effect. The second part is almost certainly true, and the first part is likely but not assured (and it is likely true because of American political tradition and our aversion to price controls; not because of the "irrationality" of the citizenry). If the profits of oil companies increase while gasoline prices continue upwards (as seems likely), then it seems likely that populist policies -- including price controls or other ill-minded ideas -- would become more likely, not less. I could draft the speech now: "Oil companies are getting rich on the backs of hard-working Americans. We tried to lower the burden by cutting out the taxes, but the greedy oil executives just grabbed more of the surplus. And so we should act punitively to re-direct money from these robber-barons back to the American people." And so price controls begin.

I know that Caplan knows more about game theory than I do, so maybe I'm missing something. But it seems to me as if he's acting as if this were a one-shot game, when it clearly isn't.