Discount Populism: Why the Federal Gas Tax Holiday Is Bunk

which there is nothing to stop them from doing.

Actually there is. It's because the guy right across the street will only raise his prices 26 extra cents to make his prices lower to attract more customers. Then the first guy will make his prices only 25 extra cents to attract more customers, ect, ect, ect...

Actually there is. It's because the guy right across the street will only raise his prices 26 extra cents to make his prices lower to attract more customers. Then the first guy will make his prices only 25 extra cents to attract more customers, ect, ect, ect...

While it sounds logical that it would work out that way, it hasn't so far. The margins the retailers make on gasoline are razor thin... in some cases gas may be a loss leader just to get people in the door to buy higher profit items at the connected convenience store. But you won't see the prices drop anywhere below the tax reduction. And if demand increase at all, even a slight bit, the tax reduction will be eaten away.

The margins the retailers make on gasoline are razor thin...

That's kinda my point. The retailers themselves can't even think about gouging on gas prices by trying to take all of the tax break for themselves because the competition is so fierce.

in some cases gas may be a loss leader just to get people in the door to buy higher profit items at the connected convenience store.

In many states it's illegal to sell gas at below cost prices because they are afraid the big gas chains will take the short term hit in order to drastically lower their prices to drive their competition out of business and then jack the prices back up.

if demand increase at all

Lower gas prices plus summer vacation driving = increased demand. So we're back at square one. Only the states no longer have any money for infrastructure.

I'm pretty sure HRC proposed this stupid idea because she knew it has zero chance of ever getting passed by Congress.

Only the states no longer have any money for infrastructure.

I'm pretty sure this only removes the federal gas tax. Each state still has its own tax on each gallon of gasoline.

Each state still has its own tax on each gallon of gasoline.

Yes but the interstates are funded in part by the federal gasoline tax. So removing the gas tax will mean the Feds will either have to not apportion that money out to the states to maintain their interstate highways, or to add more deficit spending.

That's kinda my point. The retailers themselves can't even think about gouging on gas prices by trying to take all of the tax break for themselves because the competition is so fierce.

It doesn't matter, because it's the corporations who'll charge more. It would take pennies per barrel to account for this, if my economically-disinclined assumptions are correct.

Allow me to give you a concrete example of what happens when taxes are cut on goods in order to appease or curtail certain market forces. I live in Quebec and several years ago the government decided that cigarette smuggling was running rampant and that they were actually better off slashing taxes on cigarettes. The quebec government slashed theirs by 11 dollars a carton and they were soon matched by their federal counterparts. Prices fell by 3 dollars a pack. Smuggling soon came to a halt since there was no longer any demand. Funny thing happened though, demand for legitimate cigarettes went way up. The tobacco companies soon raised their own prices to almost the entire 3 dollar a pack level and guess what, the government reinstated taxes but on the new price, making cigarettes even more expensive than they were when we started. Big surprise huh?

Did he actually agree with the tax or just point out that lowering it will have no measurable affect on the price of gas?

Like George Bush says, "If an itty-bitty tax cut is good, a big one is better!" Why don't we just go a step further and subsidize the price of gas? Hell, lets screw the free market and fix the price of gas at the pump, with the Fed subsidizing the difference. Hillary? McCain? If you're going to pander, I say go all in.

Sorry, Killfile, I don't agree with the tax at all, but I just think the idea of a tax holiday is quite stupid :-)

I'd support a repeal of the federal gas tax, but the problem with the tax holiday idea is that it assumes that gas taxes purely increase the price. This is just plain wrong -- the equilibrium price of gasoline with the tax is going to be different from the one with the tax since profits will change and thus orders of future inventory will change as well.

Even a repeal of the tax could lead to unpredictable effects on the price (although a long-term drop is the most likely outcome). The reason to oppose gas taxes is because they're too specific. Having different taxes for special cases like gasoline causes misallocation of resources. For example, this tax likely decreases the number of gas stations that can be profitable, thus requiring there to be "price gouging" laws to prevent monopolization of gas stations.

The reason economists think it's stupid is because cutting the price increases demand, which will just force the price right back up again.

The reason economists think it's stupid is because cutting the price increases demand, which will just force the price right back up again.

Only instead of the money going to fix our roads it will go into the gas companies pockets, and then won't you just love to see the price of gas hike back up once this 'holiday' is over.

Only instead of the money going to fix our roads

I hear that line a lot, but did anyone ever stop and think that maybe just maybe it was the government's involvement in creating our federal highway system in the first place that directly led to the mess we are in now and our dependence on so much oil? By using tax payer money to develop the highway system the government basically subsidized the auto industry and created a commuter culture where it is okay to live forty miles from work and drive back and forth each day.

If you want people to use less oil, a great way is to let the roads get into as crappy a condition as possible to give people a disincentive to using those roads.

If you offer free roads vs pay rail, the free roads are going to win every time. Our culture is already pro-car, you need drastic steps to reverse the trend.

If you want people to use less oil, a great way is to let the roads get into as crappy a condition as possible to give people a disincentive to using those roads.

LOL what a load of @!$%#. Had the government not made all these roads, some private corporation would have, then they'd all be toll roads. If you going to fish for arguments, find better ones. Jesus Christ

Had the government not made all these roads, some private corporation would have, then they'd all be toll roads.

Isn't paying taxes for the roads a form of toll?

I hear that line a lot, but did anyone ever stop and think that maybe just maybe it was the government's involvement in creating our federal highway system in the first place that directly led to the mess we are in now and our dependence on so much oil? By using tax payer money to develop the highway system the government basically subsidized the auto industry and created a commuter culture where it is okay to live forty miles from work and drive back and forth each day.

Typically I am all for telling the government to stay away, but the Federal Highway system is one of those projects I agree with. And for what it is worth, what company would have been able to step up and provide a system of highways like this? I don't think any.

Is there one single example if this happening anywhere?

Just because we have a highway system does not mean we have to depend on oil. You can power cars with a lot of different types of fuel/energy. The only thing preventing you from using another type of fuel for you car is no one is selling them to you because there is no infrastructure to get you the fuel you need (aside from Gas and Electric) to power your hydrogen or whatever based car.

I suppose you could use the highway system to drive truckloads of this new fuel to your town but that is not nearly as efficient as a pipeline or power grid.

If letting our highways rot and depending on some private company to pick up the slack and make our railroad system a suitable replacement is your plan for getting us off of our oil dependency, count me out.

some private corporation would have, then they'd all be toll roads.

And wouldn't that also create a disincentive to using those roads by making you pay as you use it, rather than separating the cost of the road from the use of the road?

Isn't paying taxes for the roads a form of toll?

Ummm, no. A toll is something you pay to someone who owns a road, for the use of said road. Our taxes pay for the roads, so they are public property. We pay taxes to build OUR roads. WE own them.

And wouldn't that also create a disincentive to using those roads by making you pay as you use it, rather than separating the cost of the road from the use of the road?

LOL in this economy you are arguing for a pay-per-use national highway system??? No, it wouldn't stop people's needs of roads, nothing will. If you don't want to pay taxes, leave. Go to Myanmar, I bet they have low taxes now.

Ummm, no. A toll is something you pay to someone who owns a road, for the use of said road. Our taxes pay for the roads, so they are public property. We pay taxes to build OUR roads. WE own them.

Either way I'm paying money to someone else to fix, maintain, and theoretically upgrade the roads. Call it tax or toll the effect is the same - money is exchanged for infrastructure for my use. The only difference is who the money goes to.

LOL no, it's a tax. It's, by far, not a toll. Words have definitions.

So what is your problems? If you didn't pay those taxes, you wouldn't have roads, then you'd be @!$%#ing about that. Do you just want free roads? Are you a socialist? Nobody is just going to hand you everything you need man. If you want roads, you pay for them. If you want schools, you pay for them. If you want police, you pay for them. Welcome to America. Love it or leave it.

No, it wouldn't stop people's needs of roads, nothing will.

Yes it will. People don't need roads. In the expansion west people didn't build roads to get there. People need methods of transportation of which an automobile driving on a road is one example.

Just look at Europe, if you travel around the continent you probably are far less likely to drive than you are to train it up. That's because European governments invested in rail over roads. That's not to say those government did not invest in roads at all, but that the emphasis was different. This is part of why Europe has less energy need per capita than we do in America.

Exactly, and they still have a need for roads. Are you saying that cars and trucks and SUVs should be illegal? That is only way to stop America's need for roads.

LOL in this economy you are arguing for a pay-per-use national highway system???

It certainly would be inconvenient, which is probably why corporate interests pushed for such a system to be subsidized. This removed a major cost in the transport of small units of cargo -- which in turn explains why every town in America has the same damn stores.

No, it wouldn't stop people's needs of roads, nothing will.

The demand for roads is not a given, fixed quantity though. The U.S. could easily have directed subsidies to rail instead (and we'd be more like Europe). The U.S. could have declined to subsidize transportation at all -- and we would probably have a much more diverse transportation system. You're arguing as if the roads we have today were ordained by the gods.

Dude, this issue isn't black and white, roads vs no roads. There is plenty of degrees here. Since the 1950s our government has put almost its entire weight behind their highway system and almost nothing behind the rail system. This has led to our complete reliance on automobiles and roads. In Europe and many other parts of the world their government have balanced their support of roads versus rail and those nations are far less dependent on roads and automobiles.

Are you saying that cars and trucks and SUVs should be illegal?

No, and I can't imagine how you got that from what I actually wrote. Seems like you just like swatting at straw men to me.

Well Adam, you seem to be saying that America should let it's roads crumble and go to dust. If that happens, cars are pointless. So the only way to force your fantasy would be to make vehicles like cars, trucks, and SUVs illegal. Then roads would not be needed, and we can go to total train use.

LOL no, it's a tax. It's, by far, not a toll. Words have definitions.

True - let us take a look at some of those definitions:

Tax (noun):
1 a: a charge usually of money imposed by authority on persons or property for public purposes b: a sum levied on members of an organization to defray expenses

Toll: 1: a tax or fee paid for some liberty or privilege (as of passing over a highway or bridge)

We collect taxes to pay for the roads. This is a toll for their use. Whether the money goes to the government or a private business the outcome is the same.

Exactly, thank you. We don't pay tolls except on toll roads. Otherwise we pay taxes for the building and maintenance of the public roads. Big difference. I'm glad you researched it.

There is some hogwash in this thread.

The Eisenhower System of Interstate and Defense Highways took several decades to move from concept to legislation. (Once upon a time I new the exact number of years -- I think conceptually it was born in the 20s but no legislation until the 50s.) And the law came about in part due to massive lobbing by Detroit.

The Interstate system was "sold" as a military project because it would allow tanks to quickly move around the country.

What made Americans dependent on highways and byways and cars for their commute was not the Interstate system. It was a concerted effort to replace mass/public transportation, such as streetcars, with buses .... and then a system of local governments that succumbed to the pressure to dismantle any sort of mass/public transportation infrastructure.

Moving to the extended suburbs -- accessed by perimeter "Interstates" (bah - that ain't what they are) -- came about because, again, local governments acquiesced to zoning requests from developers ... and advertisers and other creators of popular culture imbued America with a cultural ethic that makes mass/public transport expensive (poor population density) ... and the Feds funded the highways (at least in part). All the while, of course, letting "the market" push Detroit for better gas mileage (lax CAFE standards).

What's ironic to me is we are not sufficiently "dense" to make commuter trains affordable to build/run ... but too dense for the current system of "interstates" that surround and impale our major cities. That, too, shall pass -- and sooner than I had thought it might when Bush was elected in 2000.

He hasn't once pandered to John McCain or Hillary Clinton. So how could you say he panders to the elite?

he's pandering to old people, proposing to exempt them from income tax on their first 50,000 in income.

"Ageism FTW" is your argument then? Obama's plan for social security tax and whatnots are irrelevant.

i just think we ought to cut the old people off from further raiding the treasury

i just think we ought to cut the old people off from further raiding the treasury

if by "old people" you mean Republican politicians, then I agree. As for the citizens, they have worked much harder, much longer than you and i have no problem at all letting them use tax money to survive. If they don't use it, the politicians will just give it to the corporations.

And I really don't question the assertion that its not the greatest idea. I suppose I just wish that people (all people -- particularly those in positions of political power), would spend more time worrying about making better proposals and finding solutions rather than spending so much time and energy berating others ideas. But, I guess that's a problem for another thread.

Incidentally, I thought yours was a well written article.

You bring up an interesting side note, Rachel, and that is that Obama opposes the tax moratorium after once supporting one so vehemently he is said to have jokingly asked for a "Senator Obama lowered your gas prices" sticker on every pump. So why should we support something, when faced with an ex-supporter who is not flip-flopping but calling it a bad idea out of experience? (I hope that makes sense...)

Steve --
Your point did make sense and is a good one. Has he said "I tried it and it didn't work?" (I haven't heard that, but I'd be very interested to know if he did.) I'm not so sure that it worked out horribly for him. However, this is obviously a much greater scale. And, generally speaking, I'm more inclined to trust an economist saying it won't work than any politician.

#9.5: Has he said "I tried it and it didn't work?"(I haven't heard that, but I'd be very interested to know if he did.)

Meet the Press (about 1:20) is an example (the one cited in the salon article, right?).

The economic study indicates that prices dropped. The short term PED of gas is said to be only 0.1, right! Obama should state that his plan DID lower prices for people, that his plan DID provide relief for people at the pump, but he learned THAT is not the important thing... From his statements, however, he gives the mistaken impression that the price relief didn't reach consumers. This is disingenuous, as shown by the study.

The salon article states:

During one state Senate floor debate, Obama joked that he wanted signs on gas pumps in his district to say, "Senator Obama reduced your gasoline prices."

This reveals the intent for him at that time. Obviously he didn't do it because he cares so much about people and their "pain at the pump". What is the word to describe wanting your name next to the pump to remind all the people of the money you saved them?

How much demand is really taken up by the petroleum reserve demand? If it's a fairly low percentage of overall demand (say < 1%) I don't think it will have much of an effect, if any, on pump prices.

It holds over 701.3 million barrels which is about $80 billion worth.

Not for sure of the demand, though.

That would be great. Someone said it was the sulphur additive - I don't think so.

Do you know if the feds still mandate how a barrel of oil shall be processed -- what % goes to gas, diesel, kerosene, etc?

FYI - not sulphur requirement -that went into effect two years ago (I think).

Oh and Anwar that Bush keeps talking about? It's a bold faced lie, he is just counting on the fact that most people don't know it. I used to work at an oil/gas pipeline company. We pumped MILLIONS of barrels more in a single day what he is talking about getting out of Anwar. It's like pissing in the ocean. Plus, in telling everyone that if Congress would just have approved Anwar drilling 4 years ago we wouldn't be in this mess, he is leaving out the fact that it would take 15 to 20 years before we ever saw the first drop come out of there. Anwar is not even a short term solution, it's only passing the blame for this rotten economy, as everything else, onto the Congress. I keep telling myself, only 8 more months of this mess of a President.

I think it's pretty recognized that Americans do drive more in the summer thanks to vacations, I don't think the difference is that great to cause any of the estimates here to do anything crazy like even double.

My guess is that the average distance driven May-Sept has historically been higher than the annual average distance due to taking cars for a summer vacation. Just a guess.

However, the snowbirds might impact this historical pattern -- and their rigs are mega-guzzlers.

And cheaper air travel may have made inroads into summer holiday by car, also.

I'm sure there are multiple seasonal effects (vacations, weather, heating vs. cooling competitive demand variation, etc). There are also particular economic segments that are more vulnerable to them, such as tourism dependent businesses. Impact of individuals' expendable income also comes in to play when considering seasonal effect that are of a tied to "luxuries" like vacation travel, rather than necessities like a work commute.

One can note that in the economic study above which demonstrated that Obama's Illinois gas tax moratorium had a measured passthrough of about 60-80% (meaning consumers experienced relief to that proportion), key holidays were excluded and they made note of this.

The notion has been put forth, that for seasonal effect to need consideration in these calculations, it would have to be of a very significant extent. It has also been said that a 15 - 18 cent relief to consumers is of meager benefit.

What is the amount that would no longer be considered meager? Similarly, do increases of 15 cents make news, and feed in to reports of increased "pain at the pumps"? Are compounding effects of increases taken into account? Are they taken in to account in relief as well?

The gas tax is a fixed amount, about 18¢. It doesn't increase with rising fuel prices. In fact, since demand drops as prices in crease, the amount of money going into the fund are likely to decrease as fuel prices increase.

Good point. So you are saying that this is a very effective flat tax collected by the IRS, is it not?

In correlating price with demand, should one consider elasticity? What do economists estimate the demand elasticity of gas to be? What impact does it's elasticity have in a market, and how does that effect our modeling of price effect and response?

Are measures of competition (monopoly, oligopoly, vs. perfect competition) a factor for gas economic modeling, and the assumptions we draw from market forces?

I think I see what you mean, there would be an energy cost to the actual equipment operation (and government subsidized "office" related vehicles?). Probably true. I'd have no idea the extent of that, but I suppose there could be a cost breakdown somewhere out there!

From this article:

Mr. McCain has also called for a halt to purchases for the petroleum reserve and expressed support of climate-change legislation, but opposes the imposition of windfall-profits taxes on oil companies.

....

Mr. McCain would divert tax revenue from other sources to make the highway trust fund whole.

What is the mechanism by which our government manipulates crude oil prices (the predominant factor in gas price increases of late)? In other words, what action do they take when they want to increase prices?

Also, consider the constriction of limited oil refinement facilities, in addition to oil "production".

3 - Raise taxes on oil thereby committing political suicide. We're not doing that.

Yet.

1. Locally supplied oil would be less affected by weak local currency, right? (Not entirely, but partially)
2. The strategic reserve is one tenth of a percent of world demand. (McCain seems to miss this fact)
3. Not sure why that would be political suicide, but you may be admitting that reduction in tax would do the converse? Is that the case?

4. Block domestic production.
5. Block oil refinement capacity.
6. Subsidize inefficient alternative fuels.
7. Mandate botique blends.
(probably more, but I gotta run)

(Also, it is said that European regulators were hesitant to lower interest rates to allay the weak dollar... hmm, lowering interest rates relates to currency devaluation??? Interesting. Is this true?)

What is the mechanism by which OPEC manipulates crude oil prices (the predominant factor in gas price increases of late)?

One is pricing it in dollars.. Apparently that was a deal struck by Nixon. (cite: Kevin Phillips, Bad Money)

Thus they are currently in a vicious downward cycle -- they need to raise the price because the dollar is worth less ... and the rising price of oil helps lower the value of the dollar. The dollar has dropped 40% against the Euro in five years.

1. Locally supplied oil would be less affected by weak local currency, right?

No, that's not right. First of all, all prices are affected by inflation. Second, oil is traded globally, so the price is also very global. The price of local oil will be affected by worldwide market conditions. The price may be cheaper (in fact, it tends to vary by region according to the cost of transporting it), but the bulk of the price is not local.

1. Locally supplied oil would be less affected by weak local currency, right?

21.7:
No, that's not right. First of all, all prices are affected by inflation. Second, oil is traded globally, so the price is also very global. The price of local oil will be affected by worldwide market conditions. The price may be cheaper (in fact, it tends to vary by region according to the cost of transporting it), but the bulk of the price is not local.

So are you arguing that dollar valuation is NOT a factor, after all? ....or just that buying in dollars for something produced with dollars paid for with dollars is not more insulated from foreign currency issues? ...or perhaps there is no such thing as "domestic" oil after all?

The cost of transporting oil by ship from the middle-east is said to be about 7 cents per gallon, perhaps not as high as one would think. (Saw it on TV, so sorry, don't have a reference!) And besides, our predominant supplier in the US (other than ourselves) is Canada/Mexico, and our suppliers are rather spread about he world, are they not?

No, you misunderstood. The weak dollar does influence the price a great deal. My point was that it doesn't matter as much where the oil comes from. If we get a higher percentage of oil from the US then that does not imply that the price of that oil will be lower than if we got if from Saudi Arabia. The price of oil, for the most part, is global. That's because oil produced here can be sold anywhere, so it will fetch the same price anywhere.

We would have to significantly increase the total supply to decrease the price by that method alone. Where we get it from specifically does not matter much.

I see. I did mean to qualify my original statement:

1. Locally supplied oil would be less affected by weak local currency, right? (Not entirely, but partially)

But suspiciously, the latter part got dropped somewhere along the way! ;)

You see, the reason that I added that latter part was the very reason that you site! This reason being the fact that there is a "global" price to a commodity (allowing for transport complications, as you do mention). Ironic, how that works! ;)

However, do you claim that a commodity produced and consumed locally, with labor and expenses paid in local dollars, is not partially insulated from global currency fluctuation?

Also, do not discount the fact that we are not members of OPEC. We, as increased producers of oil, will not participate in OPEC's market manipulations (though we will still benefit from such, if we demand global market price for the commodity).

However, do you claim that a commodity produced and consumed locally, with labor and expenses paid in local dollars, is not partially insulated from global currency fluctuation?

Part of the problem there is that oil is rarely refined where it is drilled, so it's kinda hard to keep the entire process local. Take for example that in Kuwait, which produces a great deal of oil, gas prices are pretty damn high, I think even higher than our own, mainly because the oil is drilled in Kuwait but then shipped elsewhere to be refined and then shipped back to Kuwait as gasoline.

I don't think producing it locally will have any significant impact on the price. The actual cost to produce the oil is not the whole price. The price is set by global market conditions.

Producing our more of own oil would somewhat mitigate the effect of OPEC cutting production, but not significantly. OPEC can still cut supply and raise the price of oil (globally). The only change would be what percentage of the world supply is controlled by OPEC, and that would still be a pretty big percent. I don't think anyone is naive enough to think that the US could produce nearly as much oil as OPEC. They're still going to influence prices significantly.

#21.11: Local oil is still going to suffer from a weak dollar, though not as much.

That's basically what I'm postulating. That it offers a "hedge", not full protection.

Regarding refineries, here's an interesting tangent about that issue for Iran. Not sure if they've increased refinery capacity since 2006.

If I refined my "point" to it's essence, it would be this: We @!$%# and moan about OPEC, yet our own policies serve identical interests and effect.

We're already the second largest oil producer in the world. Why not shoot for #1?

Producing our more of own oil would somewhat mitigate the effect of OPEC cutting production, but not significantly.

US oil production peaked in the 1970s. We import 2/3 of our oil. Why? Because even if there is still some oil in the fields, it costs more to bring it out of the ground than it has been worth. Dunno if people were sticking to that story at $100/barrel oil, though.

We're already the second largest oil producer in the world. Why not shoot for #1?

And how, exaclty, do you propose to do that?

It does not seem that economics is still the reason for our decreased production! Reportedly, there are willing parties looking to extract oil. The places hot in the news are Alaska and the Gulf of Mexico.

Also, with prices high enough... less conventional sources become viable such as shale and sands (witness Canada's subsidizing such sources in anticipation of their eventual economic viability -- indeed Canada "played the futures market" in a very big tangible way, assuming oil would go even higher, which it did). As oil goes up in price, various players stand to make great gains.

How did this novel idea play out back in 2003? Even giving several years to do the work, this oil would be online today, would it not? So some have exercised foresight and made efforts to effect change long ago, but others oppose change.

This is comparable to our federal gas tax. But it's still pandering.

5c petrol tax relief in pipeline:

Petrol tax relief proposed by both Labor and Liberals

....

THE price of petrol could be cut, with both the Government and the Opposition proposing tax relief for motorists.
....
"This is a modest but meaningful way of helping all Australians - families, small businesses, pensioners and working people dependant on their cars," Dr Nelson told Parliament.
....
Assistant Treasurer Chris Bowen said the petrol tax issue would be examined during the promised "root and branch" taxation review.

More intersections of Fuel Price and Tax of various sorts elsewhere.

In France:

Sarkozy suggests cap on fuel tax

In UK:

Fuel demo adds to road taxes row

Also, I remember reading that Indonesia is subsidizing fuel to mitigate harm to their economy (also noteworthy that they're running out of oil and will cease major exports, focusing instead on domestic use).