Things I've Tagged ‘Gas’

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#Gas, #Government, #Oil Prices, #Taxation

Gas Tax Holiday

It sounds so warm and inviting, doesn’t it? Say it out loud: Gas. Tax. Holiday. Do you get the same tingling feeling that I do? It goes right to your toes. I keep thinking about this proposed vacation of sorts as a trip to the Caribbean–a trip that might or might not cost you $30 less over the course of three months than it normally would.

That does sound like a really fantastic deal doesn’t it? Not so, say economists, and rightly so I’d guess. Justin Wolfers over at the Freakonomics Blog posed a challenge to economists. He wanted to find an economist who thought that this gas tax holiday made any sense. So far, none have taken up the challenge. I wonder why?

Now, I’m no economist but I understand a couple of different things about this proposal. Let’s run through it real quick. Hillary and McCain back the deal which would be a suspension of the Federal tax on gasoline (roughly $.184); in addition to that, Hillary proposes a tax on the windfall profits (a weird way to say their exorbitant profits) of oil companies to make up for that suspended tax. This is primarily an effort to reduce costs to the consumer, which in my tank would amount to about $3.12 every fill-up and perhaps $12.50 every month–not too impressive in my eyes considering the well over $300 my wife and I spend every month on fuel.

At any rate, the suspension of the Federal tax is all well and good, but taxing the oil companies, in addition to what they already pay, is not. That extra cost will be passed on to the consumer, thereby negating the benefit of the suspended tax. Also, if I remember my intro to macro economics course, two of the primary factors driving the equilibrium price of a product are the current supply of that product and the demand for it.

If politicians truly wanted to make a difference and reduce gasoline prices they would allow domestic oil companies to drill in viable regions in our own country and off the coast in an effort to increase supply. With an increase in domestic supply, we are likely to be less susceptible to foreign pressures in the market (and reduce our dependence on foreign oil).

Granted, it will take a while for new drilling to have an affect on supply, but it would seem that anything we can do to increase domestic oil supplies would be a good thing. In addition to drilling domestically, oil companies must invest in new technologies for them to remain viable beyond oil–this isn’t about creating a happy environment, it’s about sound business principles.

However, right now someone is getting very rich–some impressive inflation, food being used for fuel, and speculators are making it happen. Incomes are not keeping up with the pace of inflation.

I don’t know all there is to know about our economy, but I do know that this gas tax holiday will not have the effect politicians are promising. At this point, the money saved is a slap to the face.

I guess $30 saved is $30 earned–dirty panderers.

Update: 5/7/08 12:34pm — After reading a bit, it seems inflation is really only affecting the volatile food and fuel markets much more aggressively than others, which accounts for the general inflation rate being so low; but I suspect most people are not seeing their wages rise accordingly. (Source: Seeing Inflation Only in the Prices That Go Up)