The Worst of the Gas Tax Debate

May 1, 2008

We present to you the worst of the gas tax and windfall profits tax debate:

(1) “Barack Obama doesn’t understand the effect of high gas prices on the American economy,” McCain spokesman Tucker Bounds said in a statement. “Sen. Obama voted for a gas tax reduction before he opposed it, he has no plan for relief from record-high gas prices for Americans this summer and he’s the empty-tank candidate in this race.

On the issue of the gas tax holiday, Barack Obama is correct. On the issue of the windfall profits tax, Obama is just pandering. But Senator McCain’s proposal won’t bring relief from record-high gas prices either.

(2) “There are times a president will take a position that a group of quote-unquote experts will agree with and there are times when a president will take a position that a group of quote-unquote experts won’t agree with it,” campaign spokesman Howard Wolfson told reporters today, “Sen. Clinton believes this is the right policy.”

These “quote-unquote” experts are essentially unanimous in their opposition, and it doesn’t matter what side of the aisle they are on, or whether they favor a larger or smaller role for government.

(3) Clinton also noted that while Democratic rival Sen. Barack Obama, D-Ill., opposes the idea, it has been embraced by presumptive Republican rival Sen. John McCain, R-Ariz.. The Indianapolis Star said Clinton chided McCain for not backing her idea of a windfall profits tax on the oil industry to make up the lost tax revenue. “I sort of feel like Goldilocks,” Clinton said. “Not too much, not too little. Just right.”

Actually, the nursery rhyme three blind mice would be more appropriate for the three candidates’ positions on this issue.

(4) Obama: “We’ve got to go after the oil companies and look at their price-gouging. We’ve got to go after windfall profits … then we’ve got to use less oil, and that means raising fuel efficiency standards for cars.”

“Price gouging” is already illegal. With regards to “go after the oil companies…,” it’s just pure rhetoric that plays well with an angry audience. A windfall profits taxes would be paid by the individuals who own the oil companies either directly as individual shareholders or indirectly through pension funds. The CEO’s of these corporations aren’t exactly the only ones that would be harmed by such a tax. Furthermore, a windfall profits tax is a bad way to reduce one type of investment in future energy.

(5) A policy proposal in a written statement from Grover Norquist of Americans for Tax Reform to members of Congress:

ATR suggests providing a year-end tax deduction to consumers which could be filed using the income tax system. At the end of each fiscal year, energy receipts from the preceding year would be tabulated and that amount deducted on their income tax form. Just as individuals can deduct their home mortgage or sales tax from their federal income tax bill, this same concept would be applicable to the consumption of fuel.

Such a proposal is worse than the gas tax holiday. It would create more complexity in the federal income tax, especially given that it would require energy receipts. Second, it would encourage more energy consumption, and to a large extent merely be capitalized into the price of energy, thereby saving consumers as a whole very little. And finally, the subsidy would vary based upon one’s marginal tax rate, and thereby via the price effect would likely have the result of making energy more expensive for the poor, while slightly subsidizing energy for the rich (those in higher marginal tax rates).

(6) Hillary Clinton speaking about a windfall profits tax: “We will pay for it by imposing a windfall profits tax on the big oil companies. They sure can afford it.”

Similar to Obama. She doesn’t tell the whole truth by telling us which individuals will pay for it, and why those individuals should. See more here.

(7) Clinton also said she will make sure that the tax suspension is passed on to motorists by ordering the Federal Trade Commission to aggressively oversee service stations. Democratic rival Barack Obama has raised that concern in so far not supporting the gas tax suspension.

Trying to legally enforce economic incidence = price controls.


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