Democrats Mulling Gas Stamp Program

September 12, 2008

Thehill.com is reporting that Democrats are mulling a gas stamp program to help drivers offset the higher price of gasoline, similar to the food stamp program. Here's a quick summary:

As the U.S. economy teeters on the brink of recession, Democratic leaders are revisiting an idea born of the Great Depression: gas stamps to help Americans cope with high fuel prices.

The proposal to subsidize fuel costs for lower-income families and individuals would almost certainly be popular with white, working-class voters and could boost Barack Obama’s appeal with that critical voting bloc in this year’s presidential election.
Democratic lawmakers and their leaders say they are serious about including it in a second economic stimulus package expected to move this month. Meanwhile, Republicans ridicule the idea as a return to welfare-state politics, which they say characterized the Democratic Party before Bill Clinton.

“It’s certainly under consideration,” House Majority Leader Steny Hoyer (D-Md.) told The Hill on Thursday afternoon. “It would be like food stamps for those people who need help.”

Gas stamps would work like traditional food stamps, which some Americans have collected since the 1930s. They would be used, however, to pay for regular unleaded instead of meat and potatoes.

Under one version of the proposal, a person earning up to $31,200 or a family of four earning up to $63,600 could receive government payments totaling $500 for gas.

In terms of the problems with this plan compared to alternatives, the list is almost endless. First, you have the environmental impact. While a gas tax is a bad proxy for carbon emissions, giving people money that can only be used to drive will encourage more driving. In this sense, it is ironic that this proposal is being sponsored by Jim McDermott who is the leading sponsor of a carbon tax bill before the Congress

Second, there is not really a paternalistic justification for government paying people to drive as if they would do too little of it with a mere cash handout versus a similarly priced handout that forces one to spend a given amount on gasoline. While economists often argue that cash transfers are superior to in-kind transfers (like food stamp program), with the food stamp program one benefit is that children are more likely to see a benefit since it can only be spent on grocery food. But with this gas stamp program, I see no such benefit. In fact, the environmental externalities of the extra driving could even outweigh any positive social benefit from the redistribution.

But then again, this concern of the superiority of cash compared to gas stamps may be unwarranted if a large fraction of the recipients were going to spend $500 per year on gasoline anyway, which is more likely today due to the higher gas prices. Then the gas stamp subsidy would just amount to the same as a cash transfer. (On the other hand, any flypaper effect would mean increases in gas consumption and a high level of negative externalities.)

One final problem of doing this would require a new government bureaucracy to administer the program, prevent fraud, etc. whose costs would put a wedge between the amount paid by taxpayers and the amount received in transfers by low-income households.

If McDermott and Pelosi are serious about wanting to help low-income people who are struggling with higher gas prices, they should probably just propose to expand EITC or TANF, provide them with cash that can be spent on anything (say public transit) and avoid a new government agency.


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