I know you've got a brain, Senator Clinton. Now, if you'd be so kind as to remove it from your...

Apr 22 2008 Published by under Elections, Presidential

Senator Hillary Clinton has apparently decided to join John McCain in calling for a "gas tax" holiday for the summer. Their plan would suspend the 18.4 cent per gallon tax on gas (and the 24.4 cent tax on diesel fuel) from Memorial Day to Labor Day, giving consumers a temporary break from the high cost of fuel. If, that is, the companies that sell the fuel don't decide to raise their prices and erase the relief.

In a Presidential campaign season that's been marked by more than its fair share of stupid ideas, this one's still a standout. Nothing says "responsible leadership" (or, for that matter, "intelligent campaigning") in times like this than proposing a measure that would:

  1. Potentially result in the loss of tens of thousands of jobs that are created by the federal highway projects that the gas tax pays for.
  2. Result in a massive spike in gas prices at the end of the summer, two months before election day.
  3. Create benefits for the average consumer only if the gas companies don't decide to raise their prices to collect some or all of the federal subsidy.
  4. Encourage consumers to buy more foreign oil this summer.
  5. Increase demand (and possibly well-head prices) during the summer.
  6. Provide a disproportionate share of the benefits to consumers who purchase massive, gas-guzzling SUVs.

Thank you, Senator Clinton, for once again reassuring me that backing Obama isn't as bad an idea as the alternative.

7 responses so far

  • andy says:

    got a link to the Clinton piece of the story?

  • Mike Dunford says:

    I apparently forgot to insert the Wall Street Journal blogs link up at the top of the story (fixed now). I also just found a second article that makes it clearer that Senator Clinton actually said that she would support the gas tax holiday if the highway funds money could be made up through other means such as a windfall profits tax on the oil companies.
    That does take care of at least reason #1, and possibly reason #2, on my list. Nevertheless, the gas tax holiday remains a bloody stupid idea (see, particularly, reasons 4-6).

  • malraux says:

    Consider the supply and demand curves in this case. While the demand curve is more or less like you'd expect, the supply curve isn't. The refineries are maxed out, so the supply curve is essentially a vertical line. Since its the intersection of the curves that defines the price, lowering the tax rate doesn't change the supply curve, as its a vertical line. So the price will be unaffected, but the government revenue is down and oil company profits are up.

  • NoAstronomer says:

    Re item #1, If you honestly think that the gas tax is actually getting spent on highway projects then you really need to take a look at how our government 'works the numbers'.
    But yeah, the gas-tax holiday is about as dumb an idea as they come. Still it's a fairly safe idea for the candidates to be in favour of since there's zero possibility of it actually happening.
    Unless the chimp picks up on it ... uh oh !

  • blf says:

    It seems completely backwards! You want to be reducing fuel consumption; or more accurately, reducing emissions (including greenhouse gases). As such, a good thing to do would be encourge the recycling of older cars for more efficient transport; be it simply more efficient cars, decent public transport, bicycling, and so on. I do not see how a petrol tax holiday would do any of that? Petrol tax may or may not be part of a package motivating the needed changes; but a petrol tax holiday seems very very unlikely to assist motiviating people.
    Reasons 4, 5, and 6 may reduce to this point? They seem to be essentially opposite of what the planet and its people need.

  • Bill Carter says:

    "Potentially result in the loss of tens of thousands of jobs that are created by the federal highway projects that the gas tax pays for."
    Come on! You don't think that the gas tax is actually spent on the things that the law requires it to be spent on? It is embezzled into other pet projects just like the Social Security Trust Fund.
    "the federal subsidy."
    Again you were sucked in. There is no federal subsidy. The politicians believe that any money belonging to anyone that they are not taking in as taxes is a "loophole". Actually oil companies are treated more poorly than the average business when it comes to taxes. For one example they are the only business that I know of that can't directly deduct depreciation. Farmers are even allowed to deduct "depreciation" of their land based on the bizarre assumption that the number of crops that can be grown on a piece of land is finite.
    "Encourage consumers to buy more foreign oil this summer."
    "Provide a disproportionate share of the benefits to consumers who purchase massive, gas-guzzling SUVs."
    You right on this one. The real problem is excessive demand. The demand for oil from China and India is growing at an extraordinary rate and Russian production seems to be peaking. The amount of extra oil that is used in the U.S. for SUVs over what would be required for ordinary cars is greater than the amount that we import from Saudi Arabia. (Of course we are not one of the Saudi's biggest customers.)
    "windfall profits tax on the oil companies"
    First someone would have to define what exactly "windfall profits" are. The last time the government claimed to have a "windfall profits tax" it was an excise tax based only on the number of barrels produced. Naturally this was passed on to the consumers.
    When it comes to taxes, perhaps if the public doesn't like them they should stop voting for them. A few years ago the voters decided that the gas tax should go up 5c a gallon. On the day that this tax became effective, gas went up 5c. People shouted "conspiracy!". The mean old oil companies all raised their prices at the same time!
    Another problem is that there have been no new refineries built in decades. This is not the fault of the oil companies. It is the fault of the NIMBY group (not in my back yard) who has stopped every attempt to build one.
    It isn't a matter of when the government will solve the problem. It is a matter of when the government will stop being the problem. As an example, Canada has the largest oil reserves in the world, not Saudi Arabia. Recently congress moved to ban the importation of oil produced from the Athabasca oil sands because producing it causes slightly more pollution than producing from conventional fields. Of course if the shipping of conventionally produced oil from the Middle East is included, producing oil from the Canadian tar sands actually produces less pollution.
    The energy problem is quite complex. The government has found that it is easier to distract the sheep by presenting various villains and whipping boys rather than trying to actually solve the problem.
    Remember these people are the ones who mandated adding ethanol produced from corn to your fuel, increasing pollution, reducing engine life, raising the price of food world wide, and ignoring the fact that corn is one of the least efficient sources of ethanol on a per acre basis. The importation of ethanol produced from beets, the most efficient source, has been banned although it costs less than half as much. The beet farmers do not vote early in Iowa.

  • Jim Liggett says:

    Economics 101
    (Simplified so that even a senator might understand)
    This class consists of four U.S. senators.
    Sheik Ten-Wives has a widget factory in Saudi Arabia. He manufactures one million widgets a year, which he sells in the U.S. The price of a widget is $90, but the federal government imposes a $10 tax on the consumer so that the cost is $100 per widget. At that price (the
    "equilibrium price") all one million of the widgets are sold. If the price goes up, demand will decrease and there will be surplus widgets. If the price goes down, a shortage of widgets will result, causing long lines at the widget store and de-facto rationing. We will consider four scenarios.
    Senator McCandy believes that price of widgets is too high, that the consumer is paying too much. To give some relief, he proposes that the government temporarily forgive the tax so that a widget would cost the consumer only $90. When the tax is forgiven the price temporarily goes to $90, but the shortage and demand very quickly return it to the equilibrium rate of $100. Results:
    Consumer: No change, still pays $100 per widget
    Government: Loss of $10 tax per widget
    Sheik TW: Additional profit of $10 per widget. Now he can afford 20 wives
    Senator Don't-Tax-Me-Tax-The-Fellow-Behind-The-Tree has a better idea. She proposes that government still tax each widget at $10 but impose the tax on Sheik TW instead of the consumer. Result:
    Consumer: Price remains at the equilibrium value of $100 per widget.
    Government: No change except that the tax bill is now sent to Sheik TW.
    Sheik TW: Puts the price of widgets at $100 from which he pays tax of $10 for the same profit.
    Senator Oh-My-Gosh says that Senator McCandy and Senator Don't are pandering to the voter and that if the government forgives the tax "it would save the consumer only pennies." No change.
    Senator Pariah does not intend to run for re-election and is not afraid to alienate the voter. He believes that too many widgets are being consumed and that the widget trees are in danger of extinction, so he proposes that the tax be doubled to $20 per widget. The price will temporarily to go $110 per widget, resulting in a glut of widgets that will quickly force the price back down to the equilibrium value. Result:
    Consumer: No change, still pays $100 per widget
    Government: Gain of $10 per widget
    Sheik TW: Net receipt of $80 per widget. He now has to determine how many wives to divorce.
    The lesson is over, but we need to assign grades.
    Senator McCandy gets a flat F. The consumer pays just as much and the former $10 tax is going to Sheik TW, making the U.S. poorer.
    Senator Don't gets a D. She didn't really change anything so this grade is punitive for her attempt to hoodwink the voters, treating them as ignorant idiots.
    Senator Oh gets a B. He almost got the economics correct but instead of a change in the tax, saving the consumer "only pennies," Senator McCandy's and Senator Don't's plans save the consumer ZERO.
    Senator Pariah gets an A. Without hurting the consumer his plan makes the U.S. $10 richer for each widget sold. However, his plan does nothing to conserve the widget trees.
    The next class will be about oil, which is somewhat more complex than widgets but the same principles apply. In preparation for that class, all students are assigned to read the Hirsch Report, which can be found at http://www.netl.doe.gov/publications/others/pdf/Oil_Peaking_NETL.pdf and an interview with Robert Hirsch (an eminent scientist, see his bio at http://www.d-n-i.net/fcs/hirsch_bio.htm) at http://globalpublicmedia.com/interviews/615 or a transcript of the interview at http://globalpublicmedia.com/transcripts/2459. From their reaction since the Hirsch Report was written two and one-half years ago, I fear that the mind of a senator is incapable of understanding it. You will, however, recognize that the predictions in the report seem to be coming true.