Gas tax follies continue
posted at 8:27 am on April 29, 2008 by Ed Morrissey
Truckers rolled into Washington DC to protest the price of a fill-up, while Barack Obama continued to oppose both Hillary Clinton and John McCain on a gas-tax “holiday”. Obama’s opposition to the gas-tax holiday has allowed Hillary to argue that Obama is an out-of-touch elitist who doesn’t understand the needs of the common American. Yet her own plan would merely replace that tax with another, more onerous tax, neither of which addresses the root problem of high gas prices (via Memeorandum):
As angry truckers encircled the Capitol in a horn-blaring caravan and consumers across the country agonized over $60 fill-ups, the issue of high fuel prices flared on the campaign trail on Monday, sharply dividing the two Democratic candidates.
Senator Hillary Rodham Clinton lined up with Senator John McCain, the presumptive Republican nominee for president, in endorsing a plan to suspend the federal excise tax on gasoline, 18.4 cents a gallon, for the summer travel season. But Senator Barack Obama, Mrs. Clinton’s Democratic rival, spoke out firmly against the proposal, saying it would save consumers little and do nothing to curtail oil consumption and imports.
While Mr. Obama’s view is shared by environmentalists and many independent energy analysts, his position allowed Mrs. Clinton to draw a contrast with her opponent in appealing to the hard-hit middle-class families and older Americans who have proven to be the bedrock of her support. She has accused Mr. Obama of being out of touch with ordinary Americans who are struggling to meet their mortgages and gas up their cars and trucks.
Mrs. Clinton said at a rally on Monday morning in Graham, N.C., that she would introduce legislation to impose a windfall-profits tax on oil companies and use the revenue to suspend the gasoline tax temporarily.
Windfall-profits tax? The oil industry has a pre-tax profit margin less than half of that of the computer industry. They made $40 billion in profits on ~$220 billion in sales, which isn’t exactly a runaway model for investors. The company for which I worked did better than ExxonMobil’s 18.6% margin in three of the last four years I worked there. Microsoft performed more than twice as well. “Windfall profits” needs a lot more definition than just gross numbers — especially to the massive amounts of investors in oil companies, including most if not all retirement accounts which rely on growth.
Hillary’s plan is nothing more than a sleight of hand. She wants to replace one tax with another, and pretend it won’t impact consumers at the pumps. The windfall-profits tax hits consumers in two ways: it forces the oil companies to pass that cost along to the consumers by raising the prices, and it cuts into investments in new oil fields and increased production. The money has to come from somewhere, and it won’t just fall out of the sky. Does anyone in their right mind really believe that hiking the tax burden on oil companies will result in lower prices?
Obama has one part of this right — the tax holiday will be essentially meaningless. It will save drivers a pittance, perhaps as much as $30 for a family, and somewhat more for truckers. It also solves nothing. If Obama opposed Hillary’s windfall-profits tax, he might even make sense … but he has his own plans for hiking taxes on oil companies. He won’t even bother with the tax holiday that would give momentary relief before distorting the market with his own schemes.
In any market, price reductions come from three mechanisms:
- Increased supply
- Cost reductions on production
- Lower demand
Both Hillary and Obama offer nothing that will lower prices, and in fact they propose throwing gasoline on the fire. In order to lower prices, we need to do some of all of the three above. Increasing supply makes the most long-term sense. We need to start tapping into our domestic supply on a large-scale basis, which would protect Americans from the market manipulations of foreign governments. We also need to eliminate regional mixtures and have all refineries producing the same product, and we need more refineries on line so we can stop importing 20% of the product at the pump from overseas.
Until then, a gas-tax holiday is nothing more than a pander, and the tax policies of the Democrats portend disaster for Americans looking for common sense relief at the pumps.