Wednesday, May 7, 2008

Yes, it's a bad idea, but...

A number of people oppose the idea of a “gas tax holiday”, both in its incarnation as proposed by Senator McCain, and as proposed (in conjunction with a windfall profits tax on oil companies) by Senator Clinton. This blogger agrees that it is a bad idea. However, some of the reasons quoted by opponents are farcical. For example:

The link below is an online open letter by economists opposing the gas tax holiday. Per Steve Clemons it is signed by "principled public intellectuals". It says (in blue, with comments in red):

In recent weeks, there have been proposals in Congress and by some presidential candidates to suspend the gas tax for the summer. As economists who study issues of energy policy, taxation, public finance, and budgeting, we write to indicate our opposition to this policy. OK.

Put simply, suspending the federal tax on gasoline this summer is a bad idea and we oppose it.   This blogger agrees that it is a bad idea…

There are several reasons for this opposition:

First, research shows that waiving the gas tax would generate major profits for oil companies rather than significantly lowering prices for consumers.
 True in McCain’s version, not an issue in Clinton’s…

Second, it would encourage people to keep buying costly imported oil and do nothing to encourage conservation. Gimme a break! Do the signatories know even one person who was planning on buying less gas that would rush out and buy more based on a price reduction of eighteen cents a gallon when the price is over $3.50 a gallon?

Third, a tax holiday would provide very little relief to families feeling squeezed.   True, we’re only talking forty to fifty bucks, a bagatelle to most, including the signatories. However, this could be significant to a low income person with an old jalopy that has atrocious gas mileage (proportionately poorer folks tend to have old clunkers), the difference between filling up and being stuck at home.

Fourth, the gas tax suspension would threaten to increase the already record deficit in the coming year and reduce the amount of money going into the highway trust fund that maintains our infrastructure. Here they finally nail it!

Signers of this letter are Democrats, Republicans and Independents. This is not a partisan issue. It is a matter of good public policy.  Overall, yes. Oh, by the way, this blogger and all the people he knows actually buy gas (refined from costly imported oil) and not "costly imported oil." Small nitpick, true, but you'd expect a bunch of important economists to be a little more precise.


Similarly, on his blog Robert Reich denounces it because a gas tax holiday “… would increase demand for gas and cause prices to rise...” Again, though this is settled theory, (i.e. price reductions usually result in increased consumption) who exactly does Reich think will stop worrying about prices and buy more gas because the price is $3.50 rather than $3.68 a gallon? It’s stuff like this that makes many ‘ordinary’ folks think that economists are eggheads without an ounce of common sense.

Opposing the gas tax holiday

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