We have a theme today. See if you can guess what it is…
I don't like taxes any more than you do, but… Christian Britschgi says, correctly: The Gas Tax Makes Sense. So, naturally…
The gas tax is the one good tax, so it makes sense that it would also be the only one that President Joe Biden is considering suspending.
"I hope I have a decision based on data I'm looking for by the end of the week," the president told reporters on Monday on whether he'd support a federal gas tax holiday. Suspending the 18-cent per gallon federal tax on gas would obviously require some votes in Congress. Biden's final "decision" on whether to call for that congressional action really just boils down to whether he thinks it's politically prudent. [Note: that "decision" was announced yesterday.]
Fuel taxes paid by motorists are collected in the federal Highway Trust Fund, which is then spent building and maintaining the roads and bridges those same drivers use. The federal gas taxes, excluding the tax on diesel, make up about 60 percent of tax revenue dedicated to the Highway Trust Fund.
Fairness demands charging drivers for the roads. The only alternative would be to require nonmotorists to subsidize driving infrastructure for them.
A user fee-like fuel tax also keeps road spending in line with demand for roads. It's harder to fund bridges to nowhere if people's fuel consumption, and the taxes they pay on it, aren't generating enough revenue for new projects.
Suspending the gas tax, therefore, makes road spending less fair and less efficient. It would also be fiscally costly. Road construction and maintenance don't become free just because gas prices are high. Suspending the gas tax only gives road users a break from paying for it.
So Biden's proposal is unfair, inefficient, and fiscally bad. Anything else?
[Note for New Hampshire and Arizona residents: our states' senators make a cameo appearance in Britschgi's article, in that they were early with this bad idea. That's not a compliment.]
Unfortunately, they're not the birds you want killed. Scott Sumner notes the proposal is Killing 4 birds with one stone.
Suppose that you wish to achieve the following 4 objectives:
- Helping Vladimir Putin win the war in Ukraine.
- Worsening global warming.
- Worsening the budget deficit.
- Enriching oil refiners at a time when supply is constrained and they are already earning extraordinary profits.
What is the most effective way of doing all four? On[e] option would be to temporarily end the federal gas tax.
I don’t actually believe that these are the reasons why President Biden recently floated this idea. I think we underrate the extent that public policies reflect ignorance of basic economic theory. Whether the ignorance lies with the voters, the policymakers, or both is another question. But people who analyze politics from a “who gains” perspective are often missing the fact that the world is complicated, and not all public policies help the intended beneficiaries.
Bottom line: "If you decide to kill 4 birds with one stone, make sure that the 4 birds are not prized specimens in the local zoo."
A small overlap here. Harvard econ prof Greg Mankiw offers Three Reasons Why a Gas Tax Holiday is a Bad Idea.
- Putting more money in peoples' pockets with any kind of tax cut would increase aggregate demand. It would thereby undermine the Fed's program to get inflation under control.
- The incidence of the tax cut would fall partly on producers rather than consumers, depending on the elasticities of supply and demand. If it is true that refiners are near capacity, as reports suggest, then supply is relatively inelastic. That means the tax reduction would mainly benefit producers.
- Given all the externalities associated with driving (climate change, congestion, accidents), the existing gasoline tax is below the optimal Pigovian level. Reducing it would move the tax system in a less efficient direction, That is, it would encourage people to drive more, exacerbating the negative externalities.
Never mind the economics, professor. Can't you see that we've got an election coming up in (as I type) 137 days? We've gotta protect our phony baloney jobs!
Apparently it wasn't powered renewably. Eric Boehm reports that it was all for naught: Biden's Gas Tax Holiday Plan Already Running on Empty.
In the hours before President Joe Biden held a press conference to officially call on Congress to approve a 90-day federal gas tax holiday, several prominent members of the president's own party effectively killed the idea.
Rep. Peter DeFazio (D–Ore.), chairman of the House Transportation Committee, released a statement Wednesday morning calling the idea "well-intentioned" but full of problems. Chief among them is the fact that suspending the gas tax for 90 days would blow a $10 billion hole in the federal Highway Trust Fund, for which the gas tax acts as a user fee.
Over in the Senate, the crucial swing vote of Sen. Joe Manchin (D–W.Va.) once again swung against Biden. "To do that and put another hole in the budget is something that is very concerning to me," Manchin told ABC News just before Biden's speech. "I'm not a yes right now, that's for sure."
Manchin also nodded to political reality; Biden's proposal suspends the tax until the end of September, at which point we'll be slightly over a month before Election Day. Is Congress really going to reimpose a tax that close to Election Day?
But just a reminder… from Drew Cline at the Josiah Bartlett Center: Government manipulation of energy markets is a cause of, not a solution to, high energy prices. Skipping down to the local angle:
In New Hampshire, Democratic politicians are blaming the Legislature and the governor for high energy prices, claiming that Republicans failed to pass a slate of renewable energy bills to reduce the state’s reliance on fossil fuels.
But they haven’t cited a single bill that would have lowered gas, oil or electricity prices this summer.
A story about supposed “legislative inaction” on clean energy published in the New Hampshire Bulletin listed eight bills that were supposed to help deliver us from our current reliance on fossil fuels. Five of the featured bills have passed, which is not something customarily associated with “inaction.”
Not one of the five would have had any effect on current energy prices. One actually delays the reduction of Eversource electricity rates for a year and keeps the ratepayer-subsidized Burgess Biomass plant open. The plant buys wood pulp at above-market rates and has already cost Eversource ratepayers an extra $150 million for electricity.
Click through for details on the one honest thing the Feds could do to help a bit: Repeal the Jones Act.