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| Gas Tax Shell Game |
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| Tuesday, 29 April 2008 | ||||||
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One of the big stories today is the division among the remaining candidates on whether or not they'll support a summer suspension of federal gas taxes. McCain and Clinton support tax-free gas during the summer months, but Obama has come out against a temporary tax cut. On this issue, I'd have to say Obama is correct - despite my distate for taxes. 1) You can't fix a supply shortage with lower prices. While rising global demand, refining limits, and a falling dollar are the root causes of oil prices, the 18 cent federal tax is about 5% of the total cost of oil in America. If the price goes down, demand goes up. Rather than save 5% on the current consumption, the aggregate result would be that we just consume 5% more. 2) Price ceilings, price manipulations. The day the tax holiday goes into effect, do you suppose all gas stations across the nation will price the full 18 cent price drop in immediately? Probably not, especially with as volatile as oil prices have been lately. On word that the government will remove taxes, more speculators will move in to profit on the growing demand. Gas stations would either ease prices lower while keeping an eye on what the competition is doing, or simply hold prices flat and use the tax differential to postpone later price increases. 3) Even if gas was at a 0% tax, the price would go up through the summer. If the federal government wants to really reduce gas prices, there are options available: Ease refining restrictions; Ease domestic drilling restrictions; Promote a strong dollar policy (balanced public budgets, more moderate interest rates) For this issue, I'm going to have to agree with Obama. An 18 cent tax is a pain, but it isn't the root of the gas price problem. It sounds good to get a tax break if you don't think about it too much, but in my opinion, the only ones who will bank any of this gift would be the gas stations (not even the refiners and drillers.)
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