Is cutting the federal gas tax the answer?
McCain and Clinton seem to think so.
Obama disagrees and perhaps rightly so. I have heard many economists on the radio and read several articles that do not support the gas tax cut either so enthusiastically. Based on my conversation with people in the refining industry and friends in general, I’m getting the sense that they are on board with Obama as well. Is an average $2 more at the pump every time we fill our tanks this summer really going to affect our pockets as they have already been affected with high food and fuel prices? What other cuts in federal programs will have to take place to cover for the billions of dollars that will be missing from the gas tax revenue? What it really comes down to is that if we don’t pay gas tax temporarily, when and how will we end up paying for the vacuum in federal revenue?
What are your thoughts?
Trackbacks
- A Gas Tax Holiday: It Could Be Worse « Vox Nova
- A Gas Tax Holiday: It Could Be Worse « Blackadder’s Lair
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Cutting the gas tax would be a monumentally stupid thing to do. If it is to be changed, tt should be increased, counterintuitive as that may seem right now.
Obama is right on this one, though both he and Clinton want to impose some sort of “windfall profits tax” on the oil companies, which would be a worse idea.
I’m on board with Liam. Gas prices are going up regardless of what we do with the gas tax, so we might as well get used to it now. If anything, we should start preparing people earlier by raising the tax. The idea that it’s a good idea to cut the tax now is pretty much just election year pandering.
Both Blackadder and Katerina have come out in favor of Obama. Who would have thunk it?
More seriously, depending on your view of the oil market, cutting the gas tax (or even raising it for that matter) would only affect the revenues derived from the tax and not really affect the price. I’m not claiming no impact. So if the federal gas tax were cut 30 cents, we might see a 3 cent drop in the price of gas. Conversely if we raised the tax 30 cents we would probably see a 3 cent or so increase in the price of fuel. In both cases, there would be some fairly short term fluctuations in price.
Hahaha Have I come across as an Obama-hater in the past?? If Obama would be against embryonic stem cell research and pro-life, I’d be all for him!
sort of “windfall profits tax” on the oil companies, which would be a worse idea.
Exactly. When are politicians going to get it right? Just because oil is at record prices doesn’t mean that oil companies are doing well. They are doing well if they only sell the oil, but most of the companies are integrated companies that have both upstream (crude extraction) and downstream (refining) operations. The refineries are the ones taking the hit.
I agree with all of you. At this point, we might as well get used to high fuel prices. If the gas tax goes directly to developing more mass transportation, I’m all for increasing it gradually. I’d love to stop driving around.
And yet, the nature of our infantile political discourse means that McCain and Clinton get away with their pandering, as all the media care about is Jeremiah Wright. the bottom line is that– from an economic perspective– gas prices are far too low in the US as it is and should be a lot higher, not lower.
Artificially lowering the price of gas for the summer would cause consumption to increase thereby depleting the supply faster and leading to $6/gal (or worse!) by Labor Day when the tax is reinstated. Apart from the lost revenue (goodbye, infrastructure!) this idiotic scheme would merely delay the day of reckoning which is coming whether we like it or not.
Borrow more and let our posterity pay for it. ;)
One of the few things I agree with Obama on. If only he can use this non pandering approach to the Columbia Trade agreement.
ANyway it will not do much. The problem is supply and lowering taxes will not do much. It would be a matter of weeks before we were in the same situation with the main result being we have a whole on the Hiwhway Trust fund
I could for a exemption for truckers perhaps but the genrral public no
I think most reasonable people are with Obama on this one. It was a brilliant political move too.
I was going to blog about this and praise Obama but then I read about his flip-flop on this issue. He was all for gas tax holidays in the past. It’s actually disgusting that he’s now attacking Clinton and McCain on the issue.
Actually, he changed his mind on this issue long before the current campaign. So his attacks on them are well-earned by them.
OK. Claiming ignorance, I’m asking someone to explain how a 30cent tax decrease would only equate into a 3cent price decrease?
Taxes are above and beyond the “market” price.
Ah, but reducing the tax on a commodity of this type would have the effect of stimulating demand without stimulating supply, so the price would tend to increase to absorb the tax decrease, with oil suppliers profiting the increase in price.
Which is one reason this is such a monumentally stupid idea – it’s one that displays a base character to pander.
But demand is high whatever the price. The run up in price are not due to demand, but to a weaker dollar and ridiculous environmental regulations that mandate different “blends” be formulated, having the effect of reducing production while the switch is made at the refineries (the last of which was built 30 years ago).
Demand for oil is far from inelastic – there is considerable evidence of demand shifting in relation to price in the US.
US first-quarter oil demand was hit hard by a contraction in January not only due to slowing economic activities, but also because of the warmer weather. The mild winter in the US caused North American oil demand to decline beyond expectations. As a result, North America’s oil demand was revised down by 0.2 mb/d y-o-y in the first quarter. As in both January and February, US oil demand strongly declined in March by 1.0% y-o-y. This decline was caused by low demand for winter products, such as heating and fuel oil. Demand for heavy products declined by 0.3 mb/d y-o-y in the first quarter. Furthermore, gasoline did not maintain its normal growth trend but declined by 0.09% y-o-y in the first quarter.
The second quarter in the US is a low seasonality for oil demand. Should the economic situation deteriorate further, then the oil demand growth forecast of 0.1 mb/d might be susceptible to a downward revision.
http://www.gulfoilandgas.com/webpro1/MAIN/Mainnews.asp?id=5714
Considering oil has doubled in price, I’m not seeing much in the way of elasticity.