Wednesday, April 30, 2008

There should be a gas tax -- on the candidates

Dean Baker calls the Times to task for not identifying McCain's and Clinton's pandering for what it is.

Senator Clinton joined Senator McCain in calling for the temporary elimination of the 18.4 cent a gallon gas tax over the summer. While the article notes that, "environmentalists and many independent energy analysts" share Senator Obama's view that the elimination of the tax would save consumers little, it still asserts that, "his position allowed Mrs. Clinton to draw a contrast with her opponent in appealing to the hard-hit middle-class families and older Americans who have proven to be the bedrock of her support."

Actually, 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. While typical middle-class families may not have the time and background to realize that Senator Clinton's proposal would not save them any money, reporters do.

The fact that Senator Clinton, like Senator McCain, sought to deceive them with a bogus tax cut should have been the main theme of today's election reporting.



The Post explains further.

The moratorium proved politically popular in Illinois, but economically questionable. The Illinois Economic and Fiscal Commission estimated that the state lost $175 million in revenue during the six-month period. A subsequent study by the National Bureau of Economic Research showed that gas prices fell by an average of 3 percent while the moratorium was in effect, meaning that only 60 percent of the savings from reduced taxes was passed on to consumers.

"It turned out to have a pretty small effect," said Joseph Doyle, an assistant professor of economics at the Massachusetts Institute of Technology. "Consumers were slightly better off, but the benefits were spread very thinly, and the government was a lot worse off."

A Chicago Tribune poll showed that only 28 percent of motorists believed that they were actually paying less for gas as a result of the suspension of the tax.

Some economists say that a nationwide "gas tax holiday" would have even less impact on gas prices than a moratorium like the one passed by Illinois in 2000. "It's basic economics," said Len Burman, director of the Tax Policy Center, a nonpartisan think tank. "Gas is always in very short supply during the summer, which is why prices go up. In order to reduce the price, you would have to increase supply, but that is difficult over the short term, because the refineries cannot add capacity."

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