We are deep in the heart of the political season, meaning candidates, especially those running for president, are ready and willing to throw anything and everything at the American people in an effort to win votes.
This is no more evident than the recent proposals from Senator Clinton and Senator McCain to have a "Summer Gas Tax Holiday". On the surface (read ‘sound bite from the campaign trail'), this sounds like a great idea - cut the gas tax and people will pay less at the pump. Hey, these are hard economic times; everyone wants a few more dollars in their pocket! But is this the reality? Will this proposal really work, or is it just a campaign trick to earn votes from, and appear sympathetic to, working class voters?
A closer look at the proposals would suggest the latter. Now this isn't a political blog, so I will refrain from endorsing the policy proposals of one candidate or the other, but gas prices have a HUGE impact on the uShip community so I think it is worth discussing this issue and why I think it is flawed.
First, I want to point to an op-ed piece in the New York Times by Bryan Caplan (associate professor of economics at George Mason University). Caplan argues that while flawed, the gas tax holiday is the lesser of other evils/proposals that would be far more damaging to the economy.
First, this is the only legitimate article I could find supporting the proposal. Second, I hardly think that it is good economic policy to support something because we are afraid of what might be done in its absence. So, let's move on to why I think this policy is more gimmick than substance, and why I believe it will not put any real dollars into the pockets of the hard working truck drivers that make up the heart and soul of our community (and will, in fact, have farther reaching consequences that will affect drivers down the road).
The primary argument against the holiday has to do with basic supply and demand. I think this argument was best stated by Leonard Burman, director of the Tax Policy Center of the Urban Institute and the Brookings Institution. "Every summer, the refiners are running full out. If the price fell, people would want to drive more and there would be shortages. It's basic economic principle that if the supply is fixed, the price is going to be determined by demand." Basically what Mr. Burman is saying is that there is a fixed supply of fuel (we are at full refinery capacity over the summer months) and that lowering the tax would lead to more consumption. With no extra supply, the oil companies would have to raise the price to offset the increased demand. In other words, oil company profits rise, prices remain essentially the same, while federal tax receipts go down.
This leads us directly to the second argument against the tax holiday, which I think is especially important to our truck driver community. The lost revenue to the federal government is estimated to be approximately $9 billion. This is $9 billion that will be taken directly out of the Highway Trust Fund. The money in this fund is used to maintain infrastructure on our Federal Highways, in fact, 45% of all highway spending comes from the trust. Pulling this money out will exacerbate the already alarming issues with our national highways infrastructure. This has direct and far reaching affects for those of you traveling the roads every day.
Based on these two reasons, and the consensus of just about every economist in the country, I would argue that the gas tax is simply political theatre. Rather than put money directly in the hands of consumers, it will simply divert money from the fed to the oil companies and impact our ability to properly maintain the safety of our federal highways.
Of course, this is just my analysis - what do you think?
