Friday, May 09, 2008

Gas Tax Holiday

John McCain and Hilary Clinton recently both came up with plans to suspend federal taxes on gasoline over the summer. This is a stupid plan for reasons I'm sure are familiar to all of my readers. But what's refreshing about it is to see a public discussion of an economic issue that is actually simple enough that people can think it through. Understanding comes in stages that seem to go roughly like this:

  • It won't save people a lot of money, and it's bad because the government will lose revenue.
  • It encourages oil consumption, which is the opposite of what we need to do long-term.
  • Wait - it won't actually lower the price of gas anyway. It just means the oil companies will get more profits and the government will keep less. (Some might view this as a feature rather than a bug, but few Democrats would.)

Of course, many people get to the point of realizing merely that the oil companies will raise the price to compensate. If they can charge $3.50 (or whatever) now, including the tax, there's no reason they wouldn't continue to charge that in the future. Oh, those greedy oil companies - is there no level to which they won't stoop?

As far as I know, the oil companies (at least in America) are not a cartel. They do not actually control the price of gasoline. It's a free market, which means that the price is (more or less) a function of supply and demand.

Please note that I'm not saying they wouldn't control the price if they could. I'm not saying the oil companies are virtuous and trying to get us a fair deal. They want to make as much money as possible, just like we want to save it. But they no more control the price of oil than realtors control the price of houses, or than Kroger controls the price of oranges.

Ahem. I really didn't mean to lecture on points familiar to everyone. So, let me return to my earlier point - it is great to see some public debate on a simple economic issue. And this one is apparently so simple that Clinton's campaign couldn't come up with a single economist to support the gas tax holiday. People thinking their way through economic issues, even though it has mixed results, is a good thing.


Sally said...

Yes, with a little bit of thought it's easy to see that the oil companies would be the beneficiaries of the tax holiday. The only economist I have seen take anything approaching a supportive stand on this does so on the basis that in his opinion, the oil companies do not get enough profit. (This was, I believe, intended to be a controversial statement and a play of devil's advocate.)

Many more economists have suggested that the current level of taxation is not high enough. (High enough for what purpose? I assume they mean that current 'lower' prices result in large negative externalities associated with 'excessive' driving.)

Hilary really lost me with this quote:

"Elite opinion is always on the side of doing things that really disadvantages the vast majority of Americans."

I can accept a lot of crap from politicians, but I cannot accept this low level of grammar - "things that really disadvantages"? - for shame!

Strunk & White in 2008!

Tam said...

Perhaps she simply forgot to read the period in the middle: "Elite opinion is always on the side of doing things. That really disadvantages the vast majority of Americans."