The Wheel is Turning and You Can't Slow Down

6 May

The political fad this week seems to be a gas tax holiday. Politicians with ambitions as lofty as President and as lowly as county legislature are proposing that just about every federal, state, and county tax on gasoline be abrogated because, evidently, we are entitled to tax-free, cheap gasoline. Never mind that taxes on gasoline pay for things like road maintenance.

Aren’t you somewhat tired of politicians treating you as a stupid, sound-bite consuming clown? Because that’s what this does. Gas may be ridiculously expensive right now, but there are so many causes of that, none of which get addressed by this politics-as-usual, quick-fix pander which, according to Paul Krugman wouldn’t necessarily solve the problem:

Why doesn’t cutting the gas tax this summer make sense? It’s Econ 101 tax incidence theory: if the supply of a good is more or less unresponsive to the price, the price to consumers will always rise until the quantity demanded falls to match the quantity supplied. Cut taxes, and all that happens is that the pretax price rises by the same amount. The McCain gas tax plan is a giveaway to oil companies, disguised as a gift to consumers.

Is the supply of gasoline really fixed? For this coming summer, it is. Refineries normally run flat out in the summer, the season of peak driving. Any elasticity in the supply comes earlier in the year, when refiners decide how much to put in inventories. The McCain/Clinton gas tax proposal comes too late for that. So it’s Econ 101: the tax cut really goes to the oil companies.

The Clinton twist is that she proposes paying for the revenue loss with an excess profits tax on oil companies. In one pocket, out the other. So it’s pointless, not evil. But it is pointless, and disappointing.

In fact, there’s not one economist who thinks this is a great idea. (I’m sure there’s one out there. Maybe two. But they’re the Dr. Nick Rivieras of economics.) If you drop the price, demand will rise, and the prices will go up and the oil companies’ already swollen profits will swell further. Yay! In addition to all that, budgets already factor in gas tax revenue, and at least on the local and state level would need to be made up somewhere.

The idea of a gas tax cap in New York – where it runs on a sliding scale – makes some sense, to prevent windfalls when gas prices soar. But abolition is downright silly.

Do we really want to screw with the economy on the fly like this? If we want to abolish the gas tax, wouldn’t it be better to do it as part of the annual budget process, rather than pandering to voters during an election cycle?

18 Responses to “The Wheel is Turning and You Can't Slow Down”

  1. Ben Franklin May 6, 2008 at 9:02 am #

    You can’t let go and you can’t hold on…

    You can’t go back and you can’t stand still…

    If the thunder don’t get you then the lightning will.

  2. Howard Goldman May 6, 2008 at 11:39 am #

    My rule of thumb (with thanks to old english law for that politically incorrect expression)is, when in doubt, lower taxes. Any taxes. Err on the side of lower taxes and less government.

    Personally I would rather see a private enterprise get my money than the state government.

  3. Mike May 6, 2008 at 11:50 am #

    The only real way to lower gas prices would be to double the taxes on gas, this would lower demand. But what do I know, ask Hank.

  4. sbrof May 6, 2008 at 12:01 pm #

    I don’t buy it. Talk about political stunts. The sad truth is people are so addicted to oil that instead of doing what everyone else does when prices go up, save and buy less, the government feels the need to step in an entitle people to continue as if nothing has changed.

    Gas will never be cheap again. The sooner we realize this and make the necessary adjustments to our infrastructure of way of life nothing will help. We live above our collective energy means. Buy a smaller house, lower the temperature a couple degrees, buy a small car, live more efficiently. That is how you save money. Oh wait that makes too much sense. Lets just watch the roads crumble and fall apart so we can fill up cheap.

  5. Jon Splett May 6, 2008 at 12:08 pm #

    Forget a tax holiday.

    We need to make the oil companies public utilities.

    http://www.commondreams.org/archive/2008/03/24/7863/

  6. Denizen May 6, 2008 at 12:24 pm #

    This is just pandering for votes in its most shameless form.

    No politician has the courage to point out the obvious: America is severely addicted to oil like a crack addict. As more Indians and Chinese gain a better standard of living they effectively become competitors for the world’s dwindling energy resources.

    What we’re seeing now with global oil production is increased demand along with either plateauing or declining supply. This of course leads to higher prices.

    Folks, the days of cheap car juice is long over, time to adapt to new set of circumstances based on using a lot less energy per capita. Of course the politicians and most of the voting electorate have their heads stuck to far in the sand to dare suggesting we make new arrangements.

    The right thing to do would actually be to RAISE gas taxes so we can all get a head start on adapting our economy, cities, and towns to this inevitable new paradigm. But what politician in their right mind would suggest such an unthinkable (err..progressive) thing!

  7. Russell May 6, 2008 at 12:53 pm #

    Actually, the right thing to do would be to build more refineries. The supply problem is not with how much oil is being taken from the ground or how much is left in the ground. The problem is that we have not built any new refineries in decades. We’re still operating on the model that supplied oil in the 1970s. Demand has gone up a little since then. Plenty of oil is being pumped from the ground and plenty remains. The real problem is that it is not getting processed at any acceptable rate. This is the real truth that politicians are afraid to talk about, not all your leftist, socialist designs being discussed here. Higher taxes and government takeovers on the order of Venezuela are not the answer, unless you want to completely dismantle our economic system. We’re not just talking about the price of oil. Look around you. It’s affecting food prices and supplies and a whole lot of essential goods and services. Raising prices further would just make everything worse, especially in the short-run (next few years).

  8. Russell May 6, 2008 at 12:55 pm #

    Oh, another problem is the current weakness of the dollar. Since the commodity is traded in dollars, a dropping dollar means a rise in prices. This will begin to turn around soon now that it is believed the Fed has stopped cutting rates. This is only part of the problem, but it will help some.

  9. hank May 6, 2008 at 12:55 pm #

    Mike–Always appreciate it when one knows they are to speak from an area of personal igorance, so they don’t–Good on you for that.

    The price of oil and it’s products are supply and demand based. Period.

    We didn’t have countries like China and India consuming fossil fuels 30 odd years ago like we do now. Speculation on the world wide spot market for oil futures doesn’t help either.

    Tax holiday my ass–it’s pandering for votes, regardless of the party affiliation of the candidate making the statement.

    Gasoline shouldn’t be taxed anyway. Until the government gets over the mindless blatherings of algore, and realizes that hydrogen fuel cell technology is the way to go, like it or no—

    OIL IS WHAT DRIVES THIS ECONOMY. Everything you buy for personal consumption gets to the point of sale by an oil powered conveyance. Fuel prices up—price of goods go up. No rocket science, just the way it has to be.

    We have an awful lot of oil domestically we could go after, flood the market and drop the price, but the Greens and libbies won’t let us do that. The fucking Caribou might be affected.

    **NOTE** I just saw on NGEO that 99% of all species ever to evolve on this planet have become extinct. And we’re sweating bullets over some fucking cousin to the moose and reindeer–FOR WHAT?

    Due to higher demand in other countries and speculation, the days of 1.00 a gallon gas are likely over forever. If we could get the greenies to get their teeth out of the sulfur thing in Diesel, I could live with 3.00 a gallon gas, and 2.00 a gallon diesel for transport of goods and services. 99 cent a gallon gas adjusted for inflation to 2007 level is about 2.90 a gallon. We just had it too good for too long.

    Jet fuel? Airlines will go under, consolidate, and go through lots of changes before air travel will be reasonable again.

    I see NOTHING that ANY politician has to say about gas prices that makes sense to me, with one exception.

    Week before last on Larry King, Nancy Pelosi thought gas was only 2.59 a gallon. And from Pundits post on pols and their SUV’s, I guess that’s more elitism—Good for me, BAD FOR YOU!!!

    Sheesh.

  10. jack fate May 6, 2008 at 1:33 pm #

    “Personally I would rather see a private enterprise get my money than the state government.”

    Assuming the private enterprise would then pave the roads and maintain the bridges you traverse? Because that’s what the gas taxes pay for.

  11. Mike May 6, 2008 at 2:25 pm #

    Good ole hank the expert, he must be part arab.

  12. hank May 6, 2008 at 2:34 pm #

    Mike–I’m not an arab. But I did live in Oil Country in South Louisiana, and I’ve also spent some time in SW Asia, courtesy of Uncle Sam. How’s about you? When’s the last time you poked your nose outside of WNY not to go to Canada?

  13. Greg May 6, 2008 at 3:37 pm #

    I’ve been thinking of buying a scooter for the late spring/summer/early fall commute

  14. Howard Goldman May 6, 2008 at 5:20 pm #

    I say use as much oil as possible. We aren’t depleting our oil, we are using up our enemies oil. Someday they will run out and we will still have ours. This is because we quietly imposed our own oil embargo about 30 years ago. We don’t drill for new oil and the environmentalists take the blame or credit depending on your take on the matter.

    I don’t know who deserves the credit but its brilliant!

  15. Denizen May 6, 2008 at 9:32 pm #

    Goldman,

    Your contemptible attitude effectively sums up everything that’s wrong with America right now. Just because of people like you, a great smile comes to my face every time gas prices go up.

    Just like every other irrational exuberance that grips this country, Americans have always had this strange belief that God granted them the right to gas that’s cheaper than in every other industrialized country, and that was never going to change. Ridiculous. Just like the house prices that were always going to climb and the tech market that was only going to get bigger, this was bound to end.

    I have zero sympathy. Cheap gas stifles public transit, it leads to urban sprawl, it encourages SUVs which are environmental disasters (and terrifying for me who drives a small car), discourage any sort of increase in fuel efficiency standards–in short, it sucks.

    All the people who’re now whining about their SUVs being more expensive have only themselves, their selfishness, and their lack of foresight to blame.

  16. Starbuck May 6, 2008 at 10:34 pm #

    Denizen’s rant is off target.

    Goldman’s comment didn’t say anything about the price or that the U.S. has the right to cheaper gas than anywhere else. It doesn’t complain at all. It just said he’s glad the U.S. is setting aside much of its oil supply as long-term reserve (even if it’s not called that).

    Our enemies won’t be running out any time soon either though, so he shouldn’t expect that. There’s huge new oil fields being discovered every year around the world as technology improves. Higher prices Denizen loves so much will motivate even more exploration and advances in exploration technology. Brazil had a very large discovery last year.

    Oil will very likely remain the major energy source for personal transporation throughout the lifetimes of everyone alive today. When it is replaced eventually, it will probably be because something more efficient is found rather than the planet running out of it.

    There’s a saying that the Stone Age didn’t end because the world ran out of stones.

  17. Jim Ostrowski May 7, 2008 at 10:55 am #

    Yeah, gas has been a huge bargain for 100 years, thanks to the market. Pretty stable prices except for taxes and inflation.

    And contrary to popular myth, no need to go to war for for something that the market will deliver to your neighborhood for twenty bucks–make that fifty Bushian/Rushian bucks now.

  18. Howard Goldman May 7, 2008 at 2:12 pm #

    When I fill my tank and feel the sticker shock, I ease the pain by reminding myself that I am saving a lot of money on imported Chinese products.

    The higher gas prices and the lower cost of imported Chinese products kind of balance each other out, and apparently we can’t have one without the other. I make up for my gas increases by shopping at Harbor Freight as often as possible. Electronics are a bargain these days too.

    Of course many of us allow politics to influence our buying. I refuse to buy gas at Citgo because owner Hugo Chavez is a communist and an enemy. I would rather walk in the rain with my gas can to the next gas station.

    I stick to USA car companies because I like USA cars, just as some people I know avoid buying imported products entirely because they are sympathetic to labor unions. So the market conditions are not so out of wack that we don’t have plenty of free choice.

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