Economists Knock Proposed Gas Tax Break

Washington Post: Experts Say Plan Supported By McCain, Clinton Would Bring Little Savings, Cause Other Problems

(Washingtonpost.com)  This story was written by Alec MacGillis and Steven Mufson.

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A growing chorus -- including a top congressional Democrat -- labeled Sen. Hillary Rodham Clinton's proposal for suspending the federal gasoline tax ineffective and shortsighted yesterday, even as she continued to paint Sen. Barack Obama as insensitive to drivers' woes for not endorsing the plan.

The Democrats' clash on the issue has emerged as a flash point in the week before the presidential primaries in Indiana and North Carolina and is emblematic of the broader contrast that the candidates have presented: Clinton says she would make immediate bread-and-butter fixes for struggling Americans, while Obama portrays himself as a truth-teller who would bring a new kind of politics to Washington and produce more lasting change.

Backing up Obama's position against Clinton's proposal to suspend the 18.4-cent-per-gallon tax for the summer is a slew of economists who argue that the proposal, first offered by Sen. John McCain, the presumptive GOP nominee, would be counterproductive. They argue that cutting the tax would drive up demand for gas at a time when the supply is tight, which would mean that the price at the pump would drop by much less than 18 cents per gallon.

The tax suspension would, as a result, cut into the highway trust fund that the tax supports, a loss of about $9 billion over the summer, but also result in fatter profit margins for oil companies. Clinton says she would replace the lost revenue by raising taxes on the oil industry.

Harvard professor N. Gregory Mankiw, who has written a best-selling textbook on economics, said what he teaches is different from what Clinton and McCain are saying about gas taxes. "What you learn in Economics 101 is that if producers can't produce much more, when you cut the tax on that good the tax is kept . . . by the suppliers and is not passed on to consumers," he said.

Clinton has an ad running in North Carolina and Indiana that attacks Obama for his opposition to lifting the tax. Yesterday, she added visuals to her pitch by joining a sheet-metal worker on his ride to work, stopping with him at a gas station to fill up the pickup truck he was driving as her motorcade's SUVs idled nearby.

"I'm willing to give you a little more relief on a short-term basis," Clinton said. In Apex, N.C., her husband chimed in by telling voters, according to ABC News: "There's a difference between the two candidates here. Her opponent says, 'Well, she's just pandering to voters.' That's not true. Look, folks, there are people out here who are choosing every week now between driving to work and having enough food for their kids, between driving to work and paying their medicine bills."

Obama, who as a state senator supported temporarily suspending the Illinois gas tax in 2000, cast Clinton's proposal as a ploy that would, according to an estimate by the Congressional Budget Office, save the average family about $30 for the summer -- or, he said yesterday, "30 cents a day, which is less than you can buy a cup of coffee for at 7-Eleven." He began running a 60-second ad showing a clip of him responding to what he calls the "Clinton-McCain proposal" at a rally.

That's typical of how Washington works. There's a problem, everybody's upset about gas prices -- let's find some short-term quick fix, that we can say we did something even though we're not really doing anything," he says in the ad. "We cannot deliver on a better energy policy unless we change how business is done in Washington. . . . That's what you need from a president -- someone who's going to tell you the truth."

Obama is proposing to reduce the cost of driving by suspending purchases for the country's Strategic Petroleum Reserve. Over the long term he would also tax windfall oil profits and cap carbon emissions to provide rebates for low-income Americans and money to invest in renewable-energy research.

He supports ethanol, which is a boon to his state's corn growers but has driven up food prices.

Leonard Burman, director of the Tax Policy Center of the Urban Institute and the Brookings Institution, said the laws of the market argue against a tax suspension. "Every summer, the refiners are running full out. If the price fell, people would want to drive more and there would be shortages," he said. "It's a basic economic principle that if the supply is fixed, the price is going to be determined by demand."

Joining in the criticism was House Majority Leader Steny H. Hoyer (D-Md.), who said that the Democratic leadership of Congress has no intention of pursuing the summer tax suspension that Clinton touted. The move "would not be positive," he said. "The oil companies would just raise their prices."

Clinton stresses that she, unlike McCain, would push for a windfall-profits tax on oil companies to offset any benefit to them and replace the revenue loss to the highway trust fund. Burman called this "utterly incoherent," saying that a windfall-profits tax would over the long term only exacerbate the supply problems caused by lifting the gas tax, because it would discourage the exploration for and development of new sources of petroleum. "So a policy intended to lower prices, but which won't do that, will be offset with a policy that's likely to raise prices over the long term," he said.

Environmentalists noted that suspending the gas tax also would undermine efforts to curb global warming because it would increase the use of gasoline, a fossil fuel that contributes to climate change. It would also reduce incentives for buying fuel-efficient vehicles and developing alternative fuels. Relying on a windfall-profits tax to replenish the highway fund would leave less to invest in renewable energy, which is what Clinton had previously said a windfall tax would go toward.

More generally, they said, stoking ire about the cost of gas undermines efforts to build a case for limiting carbon emissions, which could raise prices at the pump. "It sends a confusing message," said Kevin Knoblauch, president of the Union of Concerned Scientists. "What's more helpful is if [politicians] help consumers understand that this isn't about near-term gas prices, it's about a comprehensive and smart approach to energy policies."

That leaves the question, though, of whether the proposal will score points on the campaign trail. In Kokomo, Ind., last week, Kathy Spier said the rising cost of gas is to blame for the 50 percent drop-off in sales at her three exotic lingerie stores. "They don't have extra money to spend on frivolous things," she said.

Political consultant Carter Eskew, a former Al Gore adviser, said that if he were advising Obama, he would have said: "If you want to oppose this . . . you're going to have to spend a lot of time and energy explaining.

"I don't think it's brilliant economics; unfortunately, it may be good politics. The smart people say 'It's stupid,' and the people who aren't as schooled say 'At least it will do something for me,'" he said. "I don't know that anyone connects the dots: that there have been a series of politically expedient decisions . . . that have added up to an economic picture that is not at all rosy and in fact fairly disastrous."

Staff writers Perry Bacon Jr. in North Carolina, Peter Slevin in Indiana and Jonathan Weisman in Washington contributed to this report.

[taddles-2009]

"Really, impeached? For what exactly? War crimes? Really? Can you name any?

Congress should spend some money on getting you an education.

Posted by smiley676 at 08:27 AM : May 02, 2008"


You could start with lying to congress, that''s a felony. He was informed that the "yellow cake" connection was false, he stated it anyway. He was told there was no connection between Saddam and Al Quida, he stated it anyway. he was told the aluminum tubes were not usable for uranium enrichment, he stated that they were.

[jt_lancer]

All three of the remaining presidential candidates are economic illiterates. They haven''t a clue how a market economy works.

All they know is the bully pulpit of the state and the monopoly on the use of force that comes with it.

[kansas1946]

Fortunately, Obama said exactly the same thing because he is bright and honest. Hillary knows better, but is just pandering for votes at the expense of the economy, and McCain knows absolutely nothing about economics.

[sjc_1]

McBush digs himself a deeper hole every time he speaks. In some ways he is even dumber and more inept than Shub!

[brianbwb-2009]

"1. It wasn''''t an illegal war. It was authorized by Congress." Posted by smiley676

Try writing a check with no cash in the bank. The reasons given for the war were lies, this invalidates it''s legality.

"2. You might have point, but that isn''''t really what impeachment is for. And you would actually have to prove that he authorized the torture." Posted by smiley676

"he has already admitted as much, although he used the word "supported".

"3. Which country are you talking about? Anyway, that''''s not a crime." Posted by smiley676

It is when it is accomplished with lies, it is called fraud.

[bgwinnett]

Nazi''''s were convicted because they killed 6 million Jews. They rounded them up and slaughtered them. Not really the same thing.

Besides, that''''s what trials are for, not impeachment.

Posted by smiley676 at 09:26 AM : May 02, 2008

The indictments were for:

1. Participation in a common plan or conspiracy for the accomplishment of crime against peace
2. Planning, initiating and waging wars of aggression and other crimes against peace
3. War crimes
4. Crimes against humanity

Note the order of the charges.

[mpgeglia2]

You might have point, but that isn''''t really what impeachment is for.Posted by smiley676

Smiley-"For" is a preposition. Don''t end a sentence with a preposition.

[mpgeglia2]

kemetorigin-AMEN!

[smiley676]

The same as what many Nazis got tried and convicted for at Nuremberg; acts of aggression on sovereign state(s).


--------------------------------------------------------------------------------

Posted by bgwinnett

Nazi''s were convicted because they killed 6 million Jews. They rounded them up and slaughtered them. Not really the same thing.

Besides, that''s what trials are for, not impeachment.

[smiley676]

For conducting an illegal war of agression.

For violating agreements against torture.

Not even to mention raping the country of it''''s treasury, and it''''s people of jobs.


--------------------------------------------------------------------------------

Posted by RowdyTexan2

1. It wasn''t an illegal war. It was authorized by Congress.

2. You might have point, but that isn''t really what impeachment is for. And you would actually have to prove that he authorized the torture.

3. Which country are you talking about? Anyway, that''s not a crime.

[smiley676]

kemetorigin

Exactly, so removing the .18 gas tax will NOT cause demand to increase this summer.

[rowdytexan2]

Posted by smiley676 at 08:27 AM : May 02, 2008

For conducting an illegal war of agression.

For violating agreements against torture.

Not even to mention raping the country of it''s treasury, and it''s people of jobs.

[kemetorigin]

So why assume that it would increase consumption this summer?
Posted by smiley676 at 08:36 AM : May 02, 2008

First, in the US, gasoline is an inelastic good, meaning a change in price, thus far, has done little to affect consumption because there are no substitutes in most US cities. In Chicago, NYC, and DC, there are trains and better public transportation systems. In ATL, the urban sprawl and lack of a true transportation infrastructure means a substitute is non-existant. However, in Europe, where the tax on gasoline is upwards of $5.00 in most places, consumption did decrease. Thus, we should take it a step further and consider increasing the gas tax and imposing fines upon automakers that do not meet mpg targets. We are a consumption consumed "me" society. I have several friends with one or no children who drive eight passenger suvs--why b/c they know our government will "fix" prices on limited supply items in order to feed our consumption crazed minds. We have children and drive mid-sized sedans. We are concerned about limited resources and our footprints on the earth. Clinton-McCain are feeding into the selfishness and greed. Demand would certainly increase as people would "feel" better about the prices. Also, SUV demand is decreasing--so that is the first step. However, the economy now precludes major movement towards purchases of more fuel efficient vehicles.

[bgwinnett]

Really, impeached? For what exactly? War crimes? Really? Can you name any?

Congress should spend some money on getting you an education.

Posted by smiley676 at 08:27 AM : May 02, 2008

The same as what many Nazis got tried and convicted for at Nuremberg; acts of aggression on sovereign state(s).

[smiley676]

"Every summer, the refiners are running full out. If the price fell, people would want to drive more and there would be shortages," he said. "It''s a basic economic principle that if the supply is fixed, the price is going to be determined by demand."


Right, except that demand hasn''t fallen with the rising prices. And when it the price falls demand doesn''t change either.

The supply and demand theory is usually sound, but it hasn''t been proven to be sound when it comes to gas use.

So why assume that it would increase consumption this summer?

[smiley676]

wrote my senators this morning and topld them Americans are tired of waitig for change. Bush should be impeached and tried for war crimes. Congress should address the problems here at home. I said if i did not see action betwen now and November i would be looking for new blood to vote for. I suggest everyone write their senators, if they receive enough email then maybe they will do something. you can find their websites on line and email them direct.


--------------------------------------------------------------------------------

Posted by ranger1948

Really, impeached? For what exactly? War crimes? Really? Can you name any?

Congress should spend some money on getting you an education.

[taotxzen]

McCain''s ''Mission Accomplished''

UPDATE: John McCain said on Thursday that President Bush shouldn''t be blamed for the "Mission Accomplished" banner:

Republican John McCain says President Bush should not be held responsible for the much-criticized "mission accomplished" banner five years ago, but he should be blamed for bungling the early months of the Iraq war.

Thursday was the fifth anniversary of Bush''s dramatic landing on an aircraft carrier where the banner hung. The certain GOP presidential nominee said he thought the banner was a mistake at the time.

As a refresher, the first paragraph of Bush''s speech in front of the banner: "My fellow Americans: Major combat operations in Iraq have ended. In the battle of Iraq, the United States and our allies have prevailed."

(cont)

[taotxzen]

(cont)

NEIL CAVUTO (host): Senator -- after a conflict means after the conflict, and many argue the conflict isn''t over.

McCAIN: Well, then why was there a banner that said mission accomplished on the aircraft carrier? Look, the -- I have said a long time that reconstruction of Iraq would be a long, long, difficult process, but the conflict -- the major conflict is over, the regime change has been accomplished, and it''s very appropriate.

And on May 22, 2003 -- just three weeks after Bush spoke on the aircraft carrier -- McCain offered a mission accomplished speech of his own. On the Senate floor, McCain proclaimed "massive victory" in Iraq and credited combat-readiness for "our victory" in Afghanistan and Iraq.


* On the March 12, 2003, edition of MSNBC''s Hardball, host Chris Matthews asked McCain: "Do you believe that the people of Iraq or at least a large number of them will treat us as liberators?" McCain answered: "Absolutely. Absolutely."

Immediately after the invasion, McCain again echoed Cheney''s optimism:

* On the March 24, 2003, edition of Hardball -- several days after the U.S.-led coalition had invaded Iraq -- McCain said: "[T]here''s no doubt in my mind that we will prevail and there''s no doubt in my mind, once these people are gone, that we will be welcomed as liberators."

[taotxzen]

McCain Making Promises That Would Cost Taxpayers Billions

LIBBY QUAID, May 1, 2008, AP

WASHINGTON %u2014 Republican John McCain is making promises that would cost billions of taxpayer dollars, yet he is vague about how he would pay for them.

McCain is handing around a campaign grab bag of goodies. There are little treats like a summer gas-tax holiday and new mortgages for struggling homeowners, and there are big plums like tax breaks for corporations and families with children.

The expected GOP presidential nominee has nothing on the Democrats. Hillary Rodham Clinton and Barack Obama would spend billions of dollars themselves on things like paid family leave, universal health insurance and preschool for kids.

The difference? Unlike the Democrats, McCain has made a career of trying to cut spending. He rails against spending in nearly every speech. He gets laughs by singling out silly sounding projects like a federal DNA study of bears in Montana: "I don''t know if that was a paternity issue or a criminal issue."

And McCain gets attention when he says it was spending, not the war in Iraq, that cost Republicans their control of Congress in 2006.

(cont)

[taotxzen]

(cont)

"The reason why we lost that election, my dear friends, was because we let spending get out of control," he said recently. "We came to power in 1994 to change government, and government changed us."

Now McCain is promising ambitious cuts in spending to pay for his ideas. The cuts would not pay for all his promises, but McCain says they needn''t.

"I strongly disagree with the view that just because you reduce the tax burden, just because you let people save and invest more of their money, that therefore there''s less money that goes into government," he told reporters last week in Alabama.

McCain said he is not exactly a supply-sider _ someone who subscribes to the idea that some tax cuts can pay for themselves by encouraging economic growth. But he certainly leans that way.

"I believe there''s more money, because of the increase in economic activity and growth," he said.

Regardless of who wins the November election, it is vital to find a way to pay for new spending or tax cuts, because the next president will face a budget deficit of more than $400 billion. And the deficit will keep mounting as baby boomer retirements swell Social Security and Medicare.

McCain has pledged to balance the federal budget, although he has backed off an earlier promise to do so in his first term and now says he would do it within eight years.

(cont)