No, not about his ludicrous proposal to give US motorists a summer “holiday” from the 18.4 cent/gallon and 24.4 cent/gallon federal taxes on gasoline and diesel fuel, respectively. That’s the purest and lowest form of political pandering I’ve seen during the current 17-year-long election cycle here in the US.

The thing he’s apparently right about, given his gasoline tax vacation idea, is his admission that he “doesn’t really understand economics”. Considering that he’s the presidential nominee of one of the two major US political parties, that should be enough to [1] disqualify him (or at least hand him a landslide-scale loss in November), and [2] seriously call into question the judgment of anyone who supports him.

But back to fuel taxes.

A summer hiatus for federal fuel taxes is a stupendously, stupefyingly bad, and just plain stupid idea, for three reasons:

First, it adds about $10 billion more the US federal deficit. I know, I know–when you’re burning $12 billion a month in a war in Iraq and racking up hundreds of billions in deficit annually, $10 billion seems like chump change. But why add to the deficit when it only makes our energy situation even worse?

Second, you lower the price of a good and demand goes up. It’s part of that whole economics thing McCain “doesn’t really understand”. Right now, we can’t afford to encourage more gasoline and diesel fuel consumption, plus more CO2 emissions, even by a small amount.

Third, we can never forget how shortsighted consumers can be. People do respond to higher fuel prices, but because of the lock-in effects of commutes and the expense and hassle of replacing a vehicle with a more efficient model, those changes come very slowly. This is why the demand for gasoline is extremely price inelastic in the short term (meaning that for a given percentage increase in price you get a smaller percentage decrease in demand). Now that we see US consumers abandoning light trucks in droves, our number one priority should be to continue that trend to ensure fewer gas guzzlers are on the road when peak oil really sinks its teeth into us in just a few years, plus consume less gasoline and emit less CO2 now. Lowering gasoline prices by 18 cents would instantly reverse much of the progress made via months of rising economic pain. Truck sales would rebound as many people would leap to the erroneous conclusion that the “good old days of cheap gasoline” just might return, after all.

So, what should we do about gasoline taxes? Instead of ignoring them we should use them as a policy tool to accelerate the changes we know we need to make. We could use a new federal tax on gasoline to create a price floor that increases every year for at least five years. If the market prices gasoline below a given year’s level, then the federal tax makes up the difference. If the market price exceeds the floor, then the tax is limited to the current, 18.4 cents/gallon level. (And yes, this would ease competitive pressure on oil companies to keep gasoline prices in check–feel free to laugh derisively at this point–so we would have to add a windfall profits tax on them.)

Such a tax plan would give consumers far more price certainty than they have now. They would know, without doubt, for example, that for the rest of 2008 gasoline would cost at least $3.00/gallon, and at least $3.50 in 2009 and $4.00 in 2010, etc. The actual price could well go higher–nothing in this scheme would prevent a price spike from any of the multitude of above-ground factors that can and do jostle gasoline prices–but it would still provide a great deal of incentive toward fuel efficiency over the time span that a typical household plans on keeping a new vehicle. The result is less gasoline used, on average, in existing vehicles, plus people buying more fuel efficient vehicles which we’ll all live with on our roads for years.

As much as the US car companies would howl about this, it would help them, as well. They would gain at least as much certainty as consumers do, coupled with the same level of incentive to embrace the breadth and depth of change we all need from them.

Many people will object, and say that a much more equitable plan is one many people have talked about, namely a much higher gasoline tax offset by a reduction in payroll taxes. I would support that plan (as I’ve said on this site several times in the past), as well, provided we were fair in how the offset was calculated and implemented, and as long as we did something relatively soon.

Of course, no US politician will propose anything like these tax plans. They already passed the new, “tough” CAFE law (which I remain convinced will be completely obviated by market conditions long before 2020), so they will cling to the quaint belief that they’ve dealt with gasoline issues and then attempt to do nothing more on that front for fear of being seen as inconveniencing the car companies or, heaven forbid, imposing a new tax of any form.

According to their personal incentives, it’s best to do nothing, be politically safe in the short term, and help America run into peak oil at high speed–and accelerating, if John McCain gets his way–than to inconvenience consumers and voters with a plan to slow down or change course, even a little.