I Can't Afford the Gas for My Luxury Limousine!

The Clinton and McCain pander on the gas tax—both propose a summer tax holiday, Clinton's "paid for" by a windfall profits tax on the Snidely Whiplash gas companies—is probably the stupidest issue to surface in this race since the February NAFTA-bash. There is a debate to have about whether the gas tax is an effective way of collecting revenue, but no one seriously thinks it's too high. It's 18.4 cents per gallon. The average consumer will save about $30 over the entire summer if we scrap the tax. Liberal economist Dean Baker:

Almost all economists would agree that the tax cut proposed by Senators Clinton and McCain would save consumers nothing. With the supply of gas largely fixed by the capacity of the oil industry (they claim to be running their refineries at full capacity), the price will not change in response to the elimination of the tax. The only difference will be that money that used to go to the government in tax revenues will instead go to the oil industry as higher profits. If Senator Clinton is able to use this proposal to draw a contrast with Senator Obama in expressing concern for middle-class families it could only be attributable to the extraordinary incompetence of the reporters who are covering the campaign.

Both Democrats are hypocrites on this, Clinton considerably more so:

In 2000, Mr. Obama supported a bill in the Illinois legislature to suspend most of the state’s 6.25 percent gasoline sales tax. But he later opposed making the reduction permanent, arguing that the state needed the revenue and that the measure had saved consumers little.

Mrs. Clinton, of New York, has also taken varying stands on the issue of gas taxes. In her 2000 Senate campaign, she spoke against repealing the federal gasoline tax, calling it “one of those few taxes that New York actually gets more money from Washington than we send.”

More than that, it's the first thing alleged environmentalists like McCain and Clinton should talk about when they talk about weaning the country off foreign oil, which is why Clinton's husband mulled a 50-cent gas tax when he got into office.

Terrifying headline explainer here.

UPDATE: From the comments:

Shouldn't libertarians embrace any level of tax relief as a good thing?

If they're suckers, sure. Clinton and McCain aren't challenging the existence of the tax: They are implicitly saying it's a good tax that we should all relish paying in the non-summer months. Clinton is doing this and arguing that higher taxes on energy companies should be part of the bargain. It's phony populism in the service of a "tax cut" that would fund one meal for two at Applebees, which may or may not include dessert.

Comments

I AM | April 29, 2008, 10:19am | #

Eliminating the tax completely is stupid, as it reduces the government revenue to zero. Reducing the tax by some fraction, say 20% to 40% would increase government revenue because with gas cheaper, people will drive more and more tax will be collected.

SugarFree | April 29, 2008, 10:22am | #

How about cutting Social Security collection for the summer, making gas purchases less of a percentage of my overall budget?

jmr | April 29, 2008, 10:26am | #

Aside from the "not invented here" syndrome, why not PERMANENTLY eliminate the tax on tips, instead?? And I'm sure this gas tax temporary reprieve idea would have nothing to do with the fact that this is an election year...
JMR

Naga Sadow | April 29, 2008, 10:28am | #

SugarFree,

I agree. Also, total tax exemptions for all!

Neil | April 29, 2008, 10:29am | #

Shouldnt libertarians embrace any level of tax relief as a good thing?

SugarFree | April 29, 2008, 10:34am | #

Naga Sadow,

I'm just spitballin' ideas here. I pay much more than my "fair" share in taxes. Surely, I'm allowed to talk about places where fat can be trimmed.

fyodor | April 29, 2008, 10:43am | #

Reducing the tax by some fraction, say 20% to 40% would increase government revenue because with gas cheaper, people will drive more and more tax will be collected.

I wonder why the oil companies haven't thought of that already?

Naga Sadow | April 29, 2008, 10:44am | #

SugarFree,

No sarcasm intended. I really hate paying any taxes. Example: My goal if I ever win the lottery is to immediately rent an apartment in Florida(no income tax) and wait one year to establish legal residence. Then claim my money.

Creech | April 29, 2008, 10:50am | #

How can you out-promise the other guy who is also playing with someone else's money? "I see your three month's abatement, you stingy Republican who hates middle-class drivers, and
raise you to six months."

SugarFree | April 29, 2008, 10:51am | #

Naga Sadow,

Sorry, hard to tell sometimes... You could also try Tennessee or Alaska, if you didn't want to be slapped with the Florida tag.

Jorgen | April 29, 2008, 11:05am | #

"Shouldnt libertarians embrace any level of tax relief as a good thing?"

Not if it doesn't include spending cuts. Otherwise it's about shifting from a tax that provides incentives to reduce externalities and acts as a user fee for roads to probably an income tax hike on people who are currently too young to vote.

adrian | April 29, 2008, 11:11am | #

Shouldnt libertarians embrace any level of tax relief as a good thing?

libertarians YES
cosmotarians NO

MikeP | April 29, 2008, 11:28am | #

Reducing the tax by some fraction, say 20% to 40% would increase government revenue because with gas cheaper, people will drive more and more tax will be collected.

I wonder why the oil companies haven't thought of that already?

To expand on fyodor's comment, the supply of oil and gasoline is not adequate to allow for an increase in demand. Any short term reduction in gas tax will not increase supply, and so increased demand cannot be satisfied, and the price cannot decline. Any temporary reduction in gas tax will only increase oil company profits.

Kolohe | April 29, 2008, 11:39am | #

which is why Clinton's husband mulled a 50-cent gas tax when he got into office.

But only because of Perot, right? I don't remember this being an issue at all with Clinton I's first tax package nor his stimulus package.

ed | April 29, 2008, 11:42am | #

money that used to go to the government in tax revenues
will instead go to the oil industry as higher profits

Precisely. By what heavyhanded mechanism will the regulators (sorry, the "legislators") ensure that Joe Voter sees the savings? Will my gas receipt look like my Publix grocery receipt?
...Your federal government has saved you $2.57 on this fill-up...
Sheesh. The world has gone mad.

Kolohe | April 29, 2008, 11:43am | #

Shouldnt libertarians embrace any level of tax relief as a good thing?

libertarians YES
cosmotarians NO

call me a cosmo (because, well, it's true) but I think we've empirically proved over the last 40 years, and possibly over the last 200, that it is impossible to 'starve the beast' - it will just feed on the future

Now, if you changed it to:

"Shouldn't libertarians embrace any level of a spending cut as a good thing?"

I think you might be onto something.

Warren | April 29, 2008, 11:45am | #

Deficit spending is just another tax. Cutting taxes without reducing the deficit is a net tax increase. Though, as a method of collection, a devalued dollar has a lot going for it. Until the drug trade switches to Euros anyway.

And where the fuck is Al Gore when he should be front and center. Anyone who's really afraid of global warming should be praising high gas prices. As opposed to being against corporations and using the climate as a pretext to beat them over the head with. Snidely Whiplash indeed.

New World Dan | April 29, 2008, 11:46am | #

Shouldnt libertarians embrace any level of tax relief as a good thing?

Nope. Taxes must always, eventually, meet the level of spending. A tax cut without a spending cut is just a mortgage on the future. Cut spending and taxes will take care of themselves. The problem is that most politicians work backwards. Instead of spending what they must and then taxing what they must, they tax what they can and then look for ways to spend it.

Invisible Finger | April 29, 2008, 11:57am | #

Now, if you changed it to:

"Shouldn't libertarians embrace any level of a spending cut as a good thing?"

I think you might be onto something.

In the case of the gas tax, it's pretty much all going to road spending. The question begs another question: Do we have too few roads/lanes, too many, or close to the right amount?

P Brooks | April 29, 2008, 11:58am | #

Welcome to my restaurant; the food is free, because I want you to be happy, and like me.
All finished? Great- that's twenty bucks for the milkshake, and eighteen-fifty for the use of the plate. Oh. and five dollars for parking.

Thanks, and hurry back!

joe | April 29, 2008, 12:09pm | #

Reducing the tax by some fraction, say 20% to 40% would increase government revenue because with gas cheaper, people will drive more and more tax will be collected.

People would drive 20% more if the federal gas tax was reduced from by 4 cents per gallon?

They'd drive almost half again as much if the tax was reduced by 8 cents per gallon?

I don't think it would work out that way.

joe | April 29, 2008, 12:10pm | #

Kolohe,

I remember the idea of a "BTU tax" being kicked around as part of Clinton's economic package, but it never got off the ground. Congress decided that it would be better to generate that revenue by hiking the top income tax rate (while dropping lower ones), and tweaking some loopholes.

R C Dean | April 29, 2008, 12:28pm | #

money that used to go to the government in tax revenues will instead go to the oil industry as higher profits

This presumes that the oil companies can raise the price of gas by 18 cents a gallon any old time they want, doesn't it?

The only way that 18 cents in tax turns into profits instead is if the oil companies raise their price 18 cents as soon as the tax comes off. They can only do that if there isn't really any price comeptition for gas, which I seriously, seriously doubt.

So why would it work that way? Why wouldn't teh market and competition for market share result in the price of gas going down by roughly the amount of the tax?

Elemenope | April 29, 2008, 12:37pm | #

I don't follow the logic of this:

Both Democrats are hypocrites on this, Clinton considerably more so:

In 2000, Mr. Obama supported a bill in the Illinois legislature to suspend most of the state’s 6.25 percent gasoline sales tax. But he later opposed making the reduction permanent, arguing that the state needed the revenue and that the measure had saved consumers little.

I'm not clear on how this makes Obama a hypocrite *at all*. If what you report is accurate, he tried a local gas tax holiday in 2000, saw it didn't work and so changed positions, and maintains that position to the present day.

Since when is changing your mind eight years ago hypocrisy?

MikeP | April 29, 2008, 12:42pm | #

So why would it work that way? Why wouldn't teh market and competition for market share result in the price of gas going down by roughly the amount of the tax?

In any tax on a product, regardless of who nominally pays the tax, some portion is paid by the the producer and the balance is paid by the consumer. Who pays which fraction depends on the ratio of the elasticities of supply and demand. With supply utterly strapped as in the current situation, the oil companies are paying almost the entire 18.4 cents tax today. So if the tax is lifted, they simply will stop paying it. The price at the pump won't change because anyone who tries to drop the price will run out of their limited supply.

You can take a look at the "Who Pays Taxes" section about a third of the way down David Friedman's Price Theory chapter 7. See Figure 7-7a.

Kwix | April 29, 2008, 12:44pm | #

RE: Windfall Profits
Would some economist here help me fill in gaps in my knowledge? 10 years ago oil was trading for $10/bbl and gas was $1.00/gal. Now oil is trading at $100/bbl and gas is $4.00/gal. Correct me if I am wrong here, but wouldn't the "windfall" on gas have been ten years ago when the ratio was 10:1 instead of today when it's 100:4?

MikeP | April 29, 2008, 12:46pm | #

Note that the observation that a gas tax holiday won't benefit the consumer is due entirely to the "holiday" part of it. Three months is simply not enough time for producers to ramp up supply to take advantage of the new 18.4 cents per gallon surplus available -- especially the three months when supplies are tightest. If the tax holiday were made permanent, then prices would drop for consumers as producers found it worthwhile to invest in increasing future supply.

Guy Montag | April 29, 2008, 12:49pm | #

Kwix,

RE: Windfall Profits
Would some economist here help me fill in gaps in my knowledge?

It is not an economic problem, it is a creative writing problem.

joe | April 29, 2008, 1:05pm | #

Kwix,

One thing to remember is that the oil companies make money when the cost of oil goes up, too. They don't just buy oil at $118 per barrel - in many cases, they are the ones selling it as well.

Hence, their consistent record profits, even as the cost of their raw material goes up and retailers' margins shrink.

Elemenope | April 29, 2008, 1:13pm | #

The only way that 18 cents in tax turns into profits instead is if the oil companies raise their price 18 cents as soon as the tax comes off. They can only do that if there isn't really any price comeptition for gas, which I seriously, seriously doubt.

There is price competition, but it is somewhat mitigated by impulsiveness and convenience concerns.

Often where I live there is up to a twenty cent spread

Elemenope | April 29, 2008, 1:13pm | #

...between prices at different gas stations. The more expensive stations tend to have better locations, and so capture a good amount of business despite the extra cost.

Gilbert Martin | April 29, 2008, 1:19pm | #

"Shouldn't libertarians embrace any level of a spending cut as a good thing?"

Cut out the spending of gas tax money on mass transit boondogles and, more importantly, get rid of the Davis-Bacon Act- a giveaway of taxpayers money to labor unions that has inflated the cost of every federal construction project for the last 70 years or so and then gas tax rate could be permanently cut as well.

Gilbert Martin | April 29, 2008, 1:22pm | #

And by the way, the majority of the world's oil supplies are controlled by the state owned oil companies of various governments - not the "big oil" companies that the politicians are mouthing off about.

MikeP | April 29, 2008, 1:34pm | #

For a nice supply and demand figure explaining the fact that the tax holiday can't be passed to consumers, you can take a look at an article from exactly one year ago when this perennial idea last appeared.

A link in that article takes us to an article where Arnold Kling echoes Gilbert Martin...

If the tax cut on gasoline will not be passed through to consumers, then where will it go? It will go to oil suppliers. However, domestic suppliers will not get all of the extra revenue, because some of it will flow into profits, where it will be taxed. Only foreign suppliers will get a clean shot at the 18.4-cent-per-gallon windfall that a gasoline tax cut would provide. So, the biggest beneficiaries of our gas tax cut could be foreign suppliers. A gift from Congress for Mahmoud Ahmadinejad. How sweet!

Geotpf | April 29, 2008, 1:38pm | #

Libertarians, in theory, should be in favor of balancing the budget first, via spending cuts. However, a lot of libertarians (or at least "libertarians") are only libertarians because they hate paying taxes, and don't really care about the spending side of things.

Geotpf | April 29, 2008, 1:48pm | #

Kwix | April 29, 2008, 12:44pm | #

RE: Windfall Profits
Would some economist here help me fill in gaps in my knowledge? 10 years ago oil was trading for $10/bbl and gas was $1.00/gal. Now oil is trading at $100/bbl and gas is $4.00/gal. Correct me if I am wrong here, but wouldn't the "windfall" on gas have been ten years ago when the ratio was 10:1 instead of today when it's 100:4?

There are other costs involved with making and selling gasoline other than oil. That is, the cost of the various additives to the gasoline, the cost of rent, untilities, and salaries at the gas station and the refinery, etc., don't change much, if at all, when the price of oil goes up. Plus, the Federal tax on gas is a fixed 18.4 cents, not a percentage of the cost. Say those costs, total, are a fixed 50 cents (number pulled out of my butt). That would mean that the cost of oil in a $1 gallon of gas would be 50 cents worth (at $10 a barrel), for a 20:1 ratio, and the cost of oil in a $4 gallon of gas would be $3.50 worth (at $100 a barrel), for a 28.6:1 ratio, much closer.

thoreau | April 29, 2008, 1:58pm | #

joe-

Obviously $0.18/gallon will make a huge difference in how much people drive. I mean, look at the way the roads are nearly abandoned now compared with 2000. What has changed? A sequence of $0.18/gallon price changes that has caused us to drive only a fraction of the amount that we used to. Nowadays Los Angeles is a haven for walkers and bikers.

Or at least I assume it's that way. Some libertarian with a really simple Econ 101 model assured me that it is that way. I haven't actually looked at the evidence, but with that kind of impeccable logic why should I even need to?

Guy Montag | April 29, 2008, 2:07pm | #

Nowadays Los Angeles is a haven for walkers and bikers.

Humm, does not seem to have changed in the DC area much. We even had a 400-strong field-trip visit by big-rig drivers downtown yesterday.

At least the rising grain prices have kept the combine and tractor set away from the National Mall this year.

MikeP | April 29, 2008, 2:27pm | #

...exactly one year ago when this perennial idea last appeared.

Oops. Make that "two years ago" and "biennial".

I guess it only appears during election years. Go figure.

Craig Hickman | April 29, 2008, 9:57pm | #

If Obama's position in 2000 makes him a hypocrite, I don't see it.

It didn't work. He saw that it was dumb policy and he changed his mind.

In other words, he learned from his mistake.

What's hypocritical about that?

Patrick | April 29, 2008, 10:58pm | #

I'm gonna go with the others who say that your "hypocritical" remark is off base.

Obama even cites that exact experience in his opposition to the gas tax holiday - he acknowledges that they tried that in Illinois with poor results, so he knows from experience that it is a bad idea.

I'd say that's exercising sound judgement and learning from mistakes, not hypocrisy.

nato | April 29, 2008, 11:16pm | #

I would say that highway construction is the boondoggle, not mass transit. If the federal government and municipalities hadn't subsidized freeway and other road building (and by extension the auto industry) while regulating rail to death for the last hundred years, we'd all be using privately-built mass transit today. And that's not to mention the way progressive taxes essentially amount to transfer payments from high-density engines of economic activity to low-density bedroom communities and their asphalt. Sure, now that roads have lowered density patterns so much it's hard to make mass transit efficient, but it took a half century of subsidies to get that way. I think it might be good to correct the mistake.

jacksmith | April 30, 2008, 1:13am | #

MY FELLOW "BITTER", STUPID, WORKING CLASS PEOPLE :-)

If you think like Barack Obama, that WORKING CLASS PEOPLE are just a bunch of "BITTER"!, STUPID, PEASANTS, Cash COWS!, and CANNON FODDER. :-(

You Might Be An Idiot! :-)

If you think Barack Obama with little or no experience would be better than Hillary Clinton with 35 years experience.

You Might Be An Idiot! :-)

If you think that Obama with no experience can fix an economy on the verge of collapse better than Hillary Clinton. Whose ;-) husband (Bill Clinton) led the greatest economic expansion, and prosperity in American history.

You Might Be An Idiot! :-)

If you think that Obama with no experience fighting for universal health care can get it for you better than Hillary Clinton. Who anticipated this current health care crisis back in 1993, and fought a pitched battle against overwhelming odds to get universal health care for all the American people.

You Might Be An Idiot! :-)

If you think that Obama with no experience can manage, and get us out of two wars better than Hillary Clinton. Whose ;-) husband (Bill Clinton) went to war only when he was convinced that he absolutely had to. Then completed the mission in record time against a nuclear power. AND DID NOT LOSE THE LIFE OF A SINGLE AMERICAN SOLDIER. NOT ONE!

You Might Be An Idiot! :-)

If you think that Obama with no experience saving the environment is better than Hillary Clinton. Whose ;-) husband (Bill Clinton) left office with the greatest amount of environmental cleanup, and protections in American history.

You Might Be An Idiot! :-)

If you think that Obama with little or no education experience is better than Hillary Clinton. Whose ;-) husband (Bill Clinton) made higher education affordable for every American. And created higher job demand and starting salary’s than they had ever been before or since.

You Might Be An Idiot! :-)

If you think that Obama with no experience will be better than Hillary Clinton who spent 8 years at the right hand of President Bill Clinton. Who is already on record as one of the greatest Presidents in American history.

You Might Be An Idiot! :-)

If you think that you can change the way Washington works with pretty speeches from Obama, rather than with the experience, and political expertise of two master politicians ON YOUR SIDE like Hillary and Bill Clinton..

You Might Be An Idiot! :-)

If you think all those Republicans voting for Obama in the Democratic primaries, and caucuses are doing so because they think he is a stronger Democratic candidate than Hillary Clinton. :-)

Best regards

jacksmith... Working Class :-)

p.s. You Might Be An Idiot! :-)

If you don't know that the huge amounts of money funding the Obama campaign to try and defeat Hillary Clinton is coming in from the insurance, and medical industry, that has been ripping you off, and killing you and your children. And denying you, and your loved ones the life saving medical care you needed. All just so they can make more huge immoral profits for them-selves off of your suffering...

You see, back in 1993 Hillary Clinton had the audacity, and nerve to try and get quality, affordable universal health care for everyone to prevent the suffering and needless deaths of hundreds of thousands of you each year. :-)

Approx. 100,000 of you die each year from medical accidents from a rush to profit by the insurance, and medical industry. Another 120,000 of you die each year from treatable illness that people in other developed countries don’t die from. And I could go on, and on...

OBAMA AIDE: "WORKING-CLASS VOTERS NOT KEY FOR DEMOCRATS" :o

DEBATE! DEBATE!! DEBATE!!!...

jacksmith | April 30, 2008, 1:14am | #

DEBATE! DEBATE!! DEBATE!!!

It's time for everyone to face the truth. Barack Obama has no real chance of winning the national election in November at this time. His crushing defeat in Pennsylvania makes that fact crystal clear. His best, and only real chance of winning in November is on a ticket with Hillary Clinton as her VP.

Hillary Clinton seemed almost somber at her Pennsylvania victory speech. As if part of her was hoping Obama could have proved he had some chance of winning against the republican attack machine, and their unlimited money, and resources.

But it is absolutely essential that the democrats take back the Whitehouse in November. America, and the American people are in a very desperate condition now. And the whole World has been doing all that they can to help keep us propped up.

Hillary Clinton say's that the heat, and decisions in the Whitehouse are much tougher than the ones on the campaign trail. But I think Mr. Obama faces a test of whether he has what it takes to be a commander and chief by facing the difficult facts, and the truth before him. And by doing what is best for the American people by dropping out of the race, and offering his whole hearted assistance to Hillary Clinton to help her take back the Whitehouse for the American people, and the World.

Mr. Obama is a great speaker. And I am confident he can explain to the American people the need, and wisdom of such a personal sacrifice for them. It should be clear to everyone by now that Hillary Clinton is fighting her heart out for the American people. She has known for a long time that Mr. Obama can not win this November. You have to remember that the Clinton's have won the Whitehouse twice before. They know what it takes.

If Mr. Obama fails his test of commander and chief we can only hope that Hillary Clinton can continue her heroic fight for the American people. And that she prevails. She will need all the continual support and help we can give her. She may fight like a superhuman. But she is only human.

Sen. Hillary Clinton: "You know, more people have now voted for me than have voted for my opponent. In fact, I now have more votes than anybody has ever had in a primary contest for a nomination. And it's also clear that we've got nine more important contests to go."

Sincerely

Jacksmith... Working Class :-)

Patrick | April 30, 2008, 2:46am | #

jacksmith = ubiquitous internet troll. I've seen that same tripe posted on a dozen blogs across the political spectrum.

Sandor | April 30, 2008, 10:37am | #

I learned this lesson long ago:

If you never change your mind, regardless of the circumstances, it makes it hard for people to say that you are a hypocrite.

Yours,
George

Bill H | April 30, 2008, 11:00am | #

Reducing the tax by some fraction, say 20% to 40% would increase government revenue because with gas cheaper, people will drive more and more tax will be collected.

Reduce all taxes to zero, people will spend endlessly and government revenue will increase to infinity.

SeeingI | April 30, 2008, 3:19pm | #

"Both Democrats are hypocrites on this, Clinton considerably more so:

In 2000, Mr. Obama supported a bill in the Illinois legislature to suspend most of the state’s 6.25 percent gasoline sales tax. But he later opposed making the reduction permanent, arguing that the state needed the revenue and that the measure had saved consumers little."

How is THAT hypocritical? That sounds like somebody who learns from experience - and you notice he's the one opposing the measure now, because he knows it won't work. That's experience, folks!

eric | April 30, 2008, 7:55pm | #

How does that make Obama a hypocrite? Because he changed his mind and now opposes this measure for the same reason he cited then? Basically then anyone who ever has a position on any matter must stick with that position forever, despite any subsequent experience showing them that they may have been mistaken. You are truly brilliant.