The Silliness of the Gas Tax Holiday

Funny. When Thomas Friedman isn’t talking about Iraq, he sounds kinda reasonable.

The gas tax holiday has become the new luke warm topic of the presidential campaign. John McCain got the ball rolling when he proposed a summer long tax break on gasoline, and Hillary Clinton, eager to prove her down home bona fides, jumped on the band wagon with her own proposal.

Neither proposal, however, would turn out to be all that great. In a rare event, economist Paul Krugman put aside his Clinton Cheerleader outfit to describe McCain’s proposal as “evil” and a “bad idea” and Clinton’s as merely “pointless”. He even found time to offer up a little praise for Obama for not taking the bait and falling into the anti-tax vortex, but don’t worry kids, Krugman was back in fine ODS form by the end of the piece.

The point being that all of this talk about a tax holiday is at best a fruitless endeavor. On average, Americans might expect a whole thirty dollars in savings over the course of three months, hardly a huge amount of relief as the rate of gas prices continue to rise.

By the end of this summer, that thirty dollars buying you a half tank of gas may just be a little too optimistic.

But what really gets me about Friedman’s contribution to the discussion is that the gas tax holiday is not just a banal excursion into futility, but is also a smoke screen that is taking the focus off of the greater subject of alternative energy sources.

While Clinton and McCain are out there peddling their eighteen cent tax break, what is not being talked about are actual solutions, and some actual tough decisions we may have to make in order to actualize those solutions.

For instance, why on earth are we actually talking about a tax cut when, if we were really serious about coming up with solutions, we should be looking at increasing the price of gas.

Okay, I know, this is going to elicit boos from the peanut gallery, but give me a moment before you try and take my head off.

A little over a year ago, I was driving a massive pickup truck that got less than fifteen miles to the gallon to and from work every day. Finally, I had enough. Being old, the truck had turned into a problematic money pit with me having to regularly have work done on it just to keep it running. When it was running, things weren’t much better as I still had to contend with crying every time I pulled into the gas station.

So I broke down and bought a new car. Did I, the environmentally-minded, green-going, tree-hugging liberal go for the hybrid car? No, I went with my Volkswagon Jetta. To be sure, fuel economy was important to me, and at over 30 mpg, the Jetta was a more fuel economic car than I had owned in a long while. But the incentive just wasn’t there for me to turn to something even more frugal with gas.

And why is that? Well, I really wanted the Jetta, and I was confident that gas prices weren’t going to be so great that not getting a hybrid would cripple me in the long run.

And that’s where the gas tax hurts more than it helps, and where Krugman proves more short sighted than a liberal economist of his stature should be. At the end of his piece, he claims that the gas tax holiday isn’t that big of a deal, and it’s true that this one instance is nothing more than a flash in the pan.

But this is only a fly speck on a much greater issue.

The fact of the matter is that there aren’t the incentives for innovation and ingenuity to take us away from the crippling addiction we have where our only fix comes from the gas pump. Consumers are being hurt by high gas prices, true, but they aren’t being hurt so bad that they are flocking en masse to whatever alternatives are out there.

This means that our current gasoline and oil based economic structure is still highly profitable to those at the very top. Therefore, there isn’t enough incentive for them to innovate even more solutions.

And this is going to continue for as long as politicians and oil barons continue dangling lowered or at least stabilized gas prices in front of us like a big old honkin’ carrot.

Shorter: yes, gas prices suck, but perhaps the right answer isn’t to find a way to make gas cheaper, but instead to make it less of a necessity.

Which brings us to an interesting paradox. McCain and Clinton are both desperately using the gas tax holiday to prove how in touch they are. Indeed, even though Hillary Clinton hasn’t filled her own gas tank in years, she’s turned a fill up at the pump into a major photo op. Meanwhile, McCain blasts Obama from abstaining from the tax credit, calling him out of touch.

But who’s really in touch here? Clinton and McCain are essentially offering up non-solutions, band-aids that ultimately would have more effect politically than it ever would on the pocket books of the very working class Americans they proclaim to be fighting for. In other words, the gas tax holiday benefits Clinton and McCain, and hardly anyone else (except, of course, the oil companies that should see a nice boost in profit over the summer if such a holiday were to ever actually come into existence).

Then, when it’s over, we’ll find that we’re still addicted to gas, that prices continue to rise, and not enough mechanisms are in place to help combat the problem.

I expect this from McCain; this is classic Republican politics. Tax cuts, tax cuts, tax cuts, see how great I am, and pay no attention to whether or not these tax cuts will benefit you in any real way. But from Hillary, this is disappointing to say the least.

She is, once again, campaigning like a Republican, not just using their tactics, but also using their ideas as well. Which brings me to a piece I read by Matt Stoller the other day.

I actually think her plan could easily be turned into one that is evil through political machinations, ie. a gas tax holiday goes through while the oil company profits tax is stripped out, but the point is that Clinton is running as a full-blown conservative. And why shouldn’t she do that and go on O’Reilly? We have rejected her, so she has to find her votes somewhere. Nevertheless, it’s time to recognize that she is an opponent of liberals, and act that way.

Moveon and SEIU are probably the only groups with the capacity to do this, but basically, the Bosnia sniper fire lie needs to be replayed over and over in Indiana, and then spliced with this tax scam and the quote that her plan will lose 300,000 highway jobs because she will say anything to get elected. Clinton needs to be called out as a liar who is a weak candidate, and it is Obama-supporting Moveon members that could do this. Obviously the group would have trouble since many of its members do like Clinton, but honestly, we need a killer instinct here and not more praise of Obama.

Alternatively, SEIU could do it, but they run into a similar institutional hurdle of having ties to Clinton. Maybe the only group that could do it would be a savvy group of wealthy Obama backers who could form a 527 and just get this done.

Clinton is very weak, she’s come after liberals, and we should just put her away. And if we can’t, let’s figure out how to fix this institutional lack of a killer instinct.

Now, Matt’s temperament could be described as mercurial, and is definitely more antagonistic than my own. But at the same time, he has a point. I have tried to stay hands off on Clinton lately because while I dislike her, she still isn’t McCain, and if, heaven forbid, this General Election should be between McCain and Clinton, I would have to vote for her, or at the very least not vote for McCain.

But this whole gas tax holiday brings up a very curious situation. While I convince myself that Clinton is obviously very different from McCain, why has she fallen so easily in lockstep with him on this issue? And if that is the case, if Clinton can play the Republican on this issue, what’s stopping her on other issues as well?

It’s definitely food for thought, unlike this stupid gas tax holiday that helps nothing and actually stands in the way of progress on the energy policy issue.

More at Memeorandum: Newsweek, Firedoglake, The Carpetbagger Report, The Daily Dish, MoJoBlog, The New Republic, Balloon Juice, Energy Smart, American Street, Taylor Marsh, Daily Kos, Matthew Yglesias, DownWithTyranny!, Daimnation!, The Mahablog and PoliGazette

(edited by DrGail)

5 Responses to “The Silliness of the Gas Tax Holiday”

  1. A Siegeliv says:

    Very nice post. Much appreciated.

    My impression is that Americans look back at past, lower prices, thinking that that is where they are going. This, by definition, devalues investment that will lower consumption in the future in the face of rising prices. When it comes to energy efficiency, Americans already want a payback period of 30 months or less. (Much better than almost anyone gets from investments.) If they are underestimating the future costs to be avoided, that drives the formula even worse.

    To create certainty that tomorrow’s gasoline would be more expensive than today’s (which is the likely scenario with Global Warming), Energize America ( proposed to fund all its programs with an incrementally introduced gasoline tax, 1 cent/month/indefinitely. In the face of this, individuals and business would ‘invest’ to lower tomorrow’s energy requirements. And, manufacturers would invest to build ever more efficient vehicles.

  2. Mark says:

    Very good post, as usual, Kyle.

    Beyond the fact that it is a valid Pigou tax, one of the reasons the gas tax is one of the few taxes that I think make theoretical sense is that – as you point out – it hastens the growth of alternative energy sources. This is a fact that politicians actively choose to ignore and that all too easily gets shut out of the debate over energy policy. The reason for this is very simple: politicians rarely seek to implement actual good policy, but instead almost always seek primarily to maximize their own power (there are some exceptions to this); unfortunately, it’s much easier to maintain power if you can attack the gas companies for high oil prices and/or argue irrationally that high gas prices are the result of too much taxation.

    Something that libertarians and economists of various political stripes have been pointing out for a long while is that as oil becomes more and more expensive, alternative energies will become relatively less expensive. As that happens, more resources will be shifted towards those energy sources, making them not only less expensive by comparison, but also reducing their price in real terms. More importantly, the energy sources that will become popular will become so because of their actual utility rather than because some politician decides that one form of energy is more worthy of investment than another due to the fact that his district produces that form of energy but does not produce the other one (see, e.g., corn-based ethanol).

    From the perspective of environmental policy, an appropriately sized gas tax is really one of the best things that can be done. From the perspective of tax policy, it’s one of the least intrusive forms of taxation. In fact I would support a massive, massive increase in the gas tax if it were combined with an offsetting tax cut of some sort to mitigate the resulting increase in cost of living (the offset, FWIW, would not need to be as large as the tax increase in my hypothetical since the purpose of the gas tax is not to raise revenue so much as it is to make people bear the cost of their negative externalities and encourage the economic viability of cleaner (and possibly renewable) energy.

    In any event – another thing I agree with you about is that the price of gas in this country remains surprisingly low when compared with most of the rest of the world even before the current escalation in prices.

    As for Hillary Clinton’s willingness to jump in lockstep with Republicans of late, I would just remind you what I’ve been saying for years: the woman has no guiding principle beyond her own lust for power. The advancement of “Progressive” ideals is not an end to her; instead, “Progressivism” in the form of Democratic Party politics is simply a vehicle within which she can obtain power.
    I can virtually guarantee that a President Hillary Clinton would be virtually identical to the current imperial Presidency, except for two relatively minor differences (in the grand scheme of things):
    1. The most power-obsessed member of a Hillary Clinton administration will actually be the President, as opposed to now when it is the Vice President and his staff.
    2. The interest groups to which the President will be indebted will be only slightly different (and this potential difference is becoming smaller by the day as Hillary continues to ally herself with toadies like Limbaugh and O’Reilly).

    I’ve said this before, and I will say it again: it is completely and utterly irrational to criticize the abuses of power in the Bush Administration and support Hillary Clinton.

  3. eric, TX USA says:

    Good. Good. What we need is a clean re-industrialization of this country. Nuclear energy is where the horsepower is and we must go in that direction. I’m a rabbid conservative for the record. I live right in the middle of a huge wind farm in west texas, the kind the coastal elite hates.(They are 2.5 MW a piece btw, start production at 5mph wind speed, SWEET!) I opposed the project at first, hey, I love the view too. But now, I feel every sweep of those huge blades in money not going to Achmed. Of course, most of the up front money went to Gunther and Swen.
    They couldn’t get american generators presumably…

    Also for the record, I have wired folks who could afford it off the grid completely (also an electrician) wind-solar-diesel or propane combos. Solar and wind etc are clean feel good mother earth magazine things to do, and that’s great. But the US needs a high horsepower steel-nuclear industrialized backbone to support our future forays into folly. Take the french; why won’t Clinton laud their nuke program instead of their state-controlled medical model, which is almost as bad as the canadian?

    And please, let’s not starve a bunch of folks pouring corn into our gas tanks, please!!


  4. Pug says:

    Ironically, Hillary’s photo op at the gas station yesterday illustrated the problem with gas prices very well, just not in the way she intended.

    The “sheet metal worker”, regular guy she went with was driving a Ford F250 and the security detail behind them consisted of about a half dozen SUV’s. Probably none of those vehicles gets much over twelve miles per gallon.

    If you want to pay less for gas, use less. It ain’t that complicated. The U.S. needs what they would call in Economics 101 a shift in the demand curve. A big decrease in U.S. consumption is the only thing that has the potential to cause prices to drop right now.

  5. As that happens, more resources will be shifted towards those energy sources, making them not only less expensive by comparison, but also reducing their price in real terms. Solar and wind etc are clean feel good mother earth magazine things to do, and that’s great. But the US needs a high horsepower steel-nuclear industrialized backbone to support our future forays into folly.
    Thank you…….




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