Friday, May 02, 2008

Even Conservative Economists Don't Like Gas Tax Holiday

Senators Hillary Clinton and John McCain have both come out in favor of a "gas tax holiday" for the summer. Senator Obama has chosen to not join them. It may be good politics to offer a temporary gas tax cut during vacation (and campaign) season, but is it good economics?
According to the Washington Post, economists say that consumers probably won't see all of the 18.4 cent tax break:
Backing up Obama's position against Clinton's proposal to suspend the 18.4-cent-per-gallon tax for the summer is a slew of economists who argue that the proposal, first offered by Sen. John McCain, the presumptive GOP nominee, would be counterproductive. They argue that cutting the tax would drive up demand for gas at a time when the supply is tight, which would mean that the price at the pump would drop by much less than 18 cents per gallon.
So if drivers don't see the full benefit, who gets the rest?
The tax suspension would, as a result, cut into the highway trust fund that the tax supports, a loss of about $9 billion over the summer, but also result in fatter profit margins for oil companies.
Maybe it's just liberal economists complaining about oil companies and choking on the idea of another tax cut:
Harvard professor N. Gregory Mankiw, who has written a best-selling textbook on economics, said what he teaches is different from what Clinton and McCain are saying about gas taxes. "What you learn in Economics 101 is that if producers can't produce much more, when you cut the tax on that good the tax is kept . . . by the suppliers and is not passed on to consumers," he said.
In addition to writing his popular textbook (which I have on my shelf), Mankiw was top economic advisor to George W. Bush.
Over at The Huffington Post, Sam Stein went searching in vain for any credible economist who likes the gas tax holiday:
I started with what I thought would be my best shot, the libertarians. Jerry Taylor, a fellow for the Cato Institute, unfortunately, called the proposal a "holiday from reality."
"What would happen more likely than not, gas taxes would be cut, but pump prices wouldn't go down, service stations would just continue charging what they are charging," he said.
Stein continued:
Alright, one "no." Perhaps the free-marketers would be of a different ilk. I was wrong.
"I think it is close to political pandering," said Max Schulz, a senior fellow at the Manhattan Institute. "It is bad policy and political gimmickry."
Stein had no better luck with the American Enterprise Institute:
From Schulz, I moved on to the conservative crowd. But Ken Green, an energy expert for the American Enterprise Institute, ended up being similarly dismissive.
...
"I'm afraid," he summarized, "that your record is going to be unbroken in terms of finding someone who will like this idea."
George Bernard Shaw once said, "If you laid all the economists end to end, they still wouldn't reach a conclusion." But in this case they have: the gas tax holiday is a stupid idea.
The savings to consumers would be modest, with the biggest effect being a transfer of wealth from public funds for transportation to oil companies. But who cares, as long as it plays in Peoria?

2 Comments:

Anonymous Alan Coffey said...

And don't forget that Hillary wants to "capture" any "excess" profits with a windfall profit tax. So instead of paying the tax calculated on the volume of gas sold, we would tax the oil companies based on profit. No net difference to the owners, therefore, no net change in price.

Stupidity, sheer stupidity

8:56 AM, May 02, 2008  
Anonymous kavips said...

Tommy, what are the top three posts getting hits on your blog?....We spontaneously started it in place of ATH this week. It's wide open, you can go for the week, or all time.....

You can either post the links in my comment section, or post on your own blog with a link in my comment section that sends us your way.

Check out the others...

2:52 PM, May 09, 2008  

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