Economists: Gas Tax Holiday No Break from High Prices
So just how effective would a break from the gas tax be for Americans this summer? Sens. John McCain and Hillary Clinton say it would be a big help. In Greensboro, N.C. today, Clinton said "I would also consider having a gas tax holiday this summer because we're going to drive a lot of small independent truckers out of business." President Bush agrees with Clinton and McCain.
Sen. Barack Obama, meanwhile, says its all just a mirage, that most Americans would at most get a $30 break - about half a tank.
So what's the real scoop on the gas tax?
Well, psychologically it might give people a sense of a break, but most economists believe that Obama is closer to the reality here. The real bottom line is that a gas tax holiday might actually lead to an increase in gas prices.
Here the argument that most economists are making:
* Gasoline is subject to supply and demand. It's pretty simple economics. If the price is lower, people will drive more. Which means that oil refineries will have to try and produce more but industry experts say refineries are already working at full capacity to meet the current demand. There won't be enough to go around and that means that prices will rise in order to dampen demand. And as Prof. Edinaldo Tebaldi, who teaches international economics and trade, told the Providence Journal, gasoline is in international demand; regardless of what we do here, demand from overseas will keep the price high.
* The 18.4 cents per gallon currently goes into the US treasury. It's then spent on roads, bridges, and mass transit. But now that money will instead go to oil companies, and countries like Saudi Arabia and Venezuela.
This is the one that drives Obama crazy in particular. Earlier in his political career he did advocated for a six-month gas tax holiday in Illinois, but later vote against making it permanent because the money was needed to fix roads and bridges. Part of the reason he is making his current argument is that the Illinois gas tax holiday was not considered a success. (Clinton once argued against a gas tax holiday for the same reason.)
Here's a quote from an economist in today's Washington Post that illustrates the point:
According to James Hamilton, a professor of economics at the University of California at San Diego, the benefits of a temporary tax moratorium would probably go to oil companies rather than consumers. He said states that suspend gas taxes are able to respond to rising demand more efficiently than the country as a whole, because gasoline supplies can be easily transferred from one state to another."Prices would certainly rise to the market-clearing level," Hamilton said. "I would expect the price to go back to very close to where it was before, in which case consumers would not see any benefit."
The Post's fact check column concludes that "The advocates of a 'gas tax holiday' are exaggerating the benefits to consumers from their proposal."
John Crisp, writing for Scripps Howard News Service, says the gas tax holidays "feels like a sop tossed our way in hopes that we'll be placated long enough not to notice the primary failure of American leaders for decades: the failure to develop and implement a long-term energy policy that gives us a chance of preventing the kinds of disasters that we can see coming."
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UPDATE: The Oregonian also backed Obama's position in an editorial today. It used the same description as Crisp, calling it "an election year sop."
12:28 PM ET | 04-29-2008 | permalink
