So, I don't know if you've been hearing about this, but Hillary Clinton and John McCain have both suggested the country take a holiday from the 18.5 cent per gallon tax on gasoline during the summer months to alleviate prices and help consumers who are already struggling from high fuel costs. Barrack Obama has patently refused to endorse such a plan, saying that it wouldn't really help many people much, if at all, and that the plan is just the same political pandering that Washington always takes part in, instead of making real changes with real results.
From what I've heard and read, Obama's position is the one that most economists and experts in the field are espousing. The gas tax holiday wouldn't alleviate prices, and might actually inflate prices. The reasoning is such: the gas companies are already charging what the market can bear. If you remove the tax from the price of a gallon of gas, that money will instead just go to the Exxon Mobils of the world, and not actually reduce the price. If you're willing to pay $3.49 a gallon now, why wouldn't you in a couple months? The argument made that prices may actually rise is this: with a huge media campaign letting people know the government isn't taking it's cut from your gas bill anymore, people might believe that gas is truly cheaper, and perhaps consume more, and certainly not less. Of course, when demand goes up, and supplies stay the same, then price goes up. Therefore, temporarily repealing the tax could potentially inflate prices, having the opposite effect that was intended.
So, this leads to my question, which follows naturally, I feel: should we raise the gas tax? If all of the above is true, why wouldn't the inverse be true? If lowering the tax would just increase what are already seen as unfairly high profits, wouldn't raising the tax then act to lower their massive profits? If the perception of lower prices would increase demand and thusly price per gallon, wouldn't the perception of high prices lower demand and therefore lower prices?
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Its a hard question actually. I agree with Obama completely about the uselessness of suspending the federal gas tax for the summer (wow, a whopping 18 cents a gallon roughly). The question to be asked is if the windflall tax on the oil companies would effect the prices in the way intended. I could see having such a tax be a deterrent to oil companies to attempt to increase supply. Other such unintended consequences may also arise. Plus, theres the policy question of what exactly the government is trying to set by the precedent of having a windfall tax on a company. Is it OK just because its a big evil oil company? At what point are profits too much? Do we really want to deter companies from making money beyond a certain point?
I think the safer decision for now is to leave it alone to be honest. Supply and demand will balance itself out and the community will either have to deal with it or change how or what it uses for energy. Its not the fault of the oil companies that we are completely reliant on their product. I do not believe that as Americans we have a birthright to cheap oil. The real solution is to invest in other energy sources to reduce the demand on oil. Economics 101 will tell us that reducing such a demand will reduce oil prices. But such a solution would be -gasp- long term. I have to find you the link to an article I read a few months ago by a pair of radical environmentalists who were outlining an aggressive plan for alternative fuel. Even without new fuels though, we could make a major shift away from oil. I think in most cases its not cost effective yet. When it is, we will do it. We don't need the shadowy tendrils of government tightening their grasp around a company with a short-term solution.
One final note: So if they over-tax the excess profits of these companies, how does that help the people? What about this would make the oil companies reduce their prices? How do the citizens see any of this money? Will the extra tax money be used to alleviate other taxes that the people have been paying? Or are we just giving more of our money to the government instead of the oil companies now? So many questions, so few answers.
Just after I hit the send button and went back to my email, I got a daily email from Cato with this link. http://www.cato.org/videohighlights/index.php?highlight_id=50
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