Transportation news: McCain calls for suspending motor vehicle fuel tax

Critics say plan is economically not feasible, saying savings would be minimal

Jeff Berman, Group News Editor -- Logistics Management, 4/16/2008

PITTSBURGH—Less than a week after calling for the federal government to cease filling its Strategic Petroleum Reserve (SPR) with crude oil, Presidential candidate John McCain yesterday proposed to suspend the federal tax on motor fuels from Memorial Day to Labor Day.

The current motor fuel federal tax is 18.4 cents per gallon for gasoline and 24.4 cents for diesel fuel and has not been raised since 1993. An Associated Press report said suspending fuel taxes would cost $10 billion in lost revenue McCain made his comments this week while giving a speech on his economic agenda at Carnegie Mellon University.

During his speech, McCain said that the effect of suspending the motor fuels tax “will be an immediate economic stimulus—taking a few dollars off the price of a tank of gas every time a family, farmer or trucker stops to fill up.” And he added the government should suspend the purchase of oil for the SPR, which he said “has also contributed to the rising price of oil.” These two measures, said McCain, would subsequently provide a “timely reduction in the price of gasoline…because the price of gas affects the price of food, packaging and just about everything else…[and] will help to spread relief across the entire economy.”

With diesel gasoline setting record highs on a near weekly basis this week and cracking the $4 per gallon mark at $4.059 per gallon—as a national average—for the first time ever this week, coupled with oil prices settling in at north of $100 per barrel, it is safe to say oil and gas prices have been front and center for shippers, carriers, and politicians alike.

Despite McCain’s contention that the motor fuels suspension would provide an economic boost and remove some of the pain at the pump, his suggestion was blasted by House Committee on Transportation and Infrastructure Chairman James L. Oberstar and Subcommittee on Highways and Transit Chairman Peter A. Defazio.

Oberstar and Defazio said that this proposal would save most drivers less than $30 for the summer and cost states billions in lost highway construction, highway safety, and public transit funding, and force the elimination of hundreds of thousands of construction jobs across the country.

And at a time when the topic of transportation infrastructure continues to gain traction, they said this plan would hasten future progress made on that front, because it would bring the Highway Trust Fund to the “edge of insolvency”—by trimming Highway Trust Fund Revenues by nearly $3 billion per month and creating an estimated $12 billion shortfall in the fund by the end of fiscal year 2009.

Two well-connected industry experts told LM that McCain’s proposal may center more on politics than economics and would ultimately not have a meaningful impact on shippers or consumers.

“The Federal Highway Trust Fund could not stand this hit,” said James Haughey, chief economist for Reed Construction Data (a corporate sibling of LM). “[And] the proposal not to put oil into the SPR has been made and quickly dismissed several times. The SPR is there to protect us from empty gas pumps not high prices.”

Haughey also said that the SPR program and highway funding processes are “painfully negotiated compromises,” and Congress does not want to revisit them in an election year.”

But at the Pennsylvania Democratic Debate, Hillary Clinton called for ceasing putting oil into the SPR and releasing some of it to “help drive down the price globally.” She added that she supports a windfall profits tax on oil companies excessively high profits, which would put that money back into the Highway Trust Fund “so that we don’t lose out on repair, construction, and rebuilding.”

As for shippers, Haughey said if they want the government to take action to make fuel cheaper, they should ask it to eliminate the $0.50 a gallon subsidy for ethanol and a similar import tariff to eliminate recent environmental rules that created what he called boutique gasoline brands (ultra low-sulfur diesel and some forms of biodiesel) in many parts of the country that are very expensive to produce and ship.

Michael A. Regan, CEO of transportation rate analysts TranzAct Technologies opined that McCain’s proposal is an endeavor designed to placate voters or “robbing Peter to pay Paul.”

“It is my understanding that highway taxes go to the Highway Trust Fund, which is in dire financial shape,” said Regan. “Now why would you advocate compounding the plight of the highway tax of the Highway Trust Fund when we already have more projects and things for those funds than you have funds to do them with? If this was not an election year you would be hearing nothing about highway gas tax.”