Friday, May 2, 2008

Gas Tax Takes a Holiday

McCain and Hillary Clinton have come out in support of a gas tax holiday.
Usually, when politicians line up on two sides of an issue, networks find an "expert" for each side. This form of "even handed" journalism drives me insane, and I contend is bad for our public discourse. The catch with this issue is that no one can find any experts who support the tax holiday, so networks and newspapers have been forced to concede that by any reasonable measure, Obama is right.
Paul Krugman explains why the gas tax makes no economic sense.
John McCain has a really bad idea on gasoline, Hillary Clinton is emulating him (but with a twist that makes her plan pointless rather than evil), and Barack Obama, to his credit, says no.

Why doesn’t cutting the gas tax this summer make sense? It’s Econ 101 tax incidence theory: if the supply of a good is more or less unresponsive to the price, the price to consumers will always rise until the quantity demanded falls to match the quantity supplied. Cut taxes, and all that happens is that the pretax price rises by the same amount. The McCain gas tax plan is a giveaway to oil companies, disguised as a gift to consumers.

Is the supply of gasoline really fixed? For this coming summer, it is. Refineries normally run flat out in the summer, the season of peak driving. Any elasticity in the supply comes earlier in the year, when refiners decide how much to put in inventories. The McCain/Clinton gas tax proposal comes too late for that. So it’s Econ 101: the tax cut really goes to the oil companies.

So, basically, what the McCain plan would do is take money that normally goes toward road repairs and push it into the pockets of already flush oil companies. Seen like that, the giveaway doesn't look so populist. Krugman continues
The Clinton twist is that she proposes paying for the revenue loss with an excess profits tax on oil companies. In one pocket, out the other. So it’s pointless, not evil. But it is pointless, and disappointing.

Just to be clear: I don’t regard this as a major issue. It’s a one-time thing, not a matter of principle, especially because everyone knows the gas-tax holiday isn’t actually going to happen. Health care reform, on the other hand, could happen, and is very much a long-term issue — so poisoning the well by in effect running against universality, as Obama has, is a much more serious breach.

He is certainly right that this is no major issue. But what the Clinton campaign has done is maddening, basically attempting to mislead people on where they stand on this issue. Not to mention that this gives me little hope that the Clinton administration would stand up to the vast carbon conspiracy. More along this line here.
(Posted by Ewan)

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