The Dems are Making a Mistake - Gas Tax Removal

[lostinacause]

As most of you know by now, the Democrats have suggested a plan to eliminate the federal tax on gasoline. This plan is not going to solve the energy problems that America is currently facing. Please read this, recommend it and tell you representatives that this is a bad plan.

The plan to reduce the taxes on gasoline to provide a “break” to consumers is ill-founded. What reducing the gas tax amounts to is a subsidy, in the form of an increased deficit, to those who consume more fuel.

The people who are willing to reduce their consumption essentially pay so that people who consume significant amounts of gas can continue to do so. Those who are not willing to reduce their consumption have to pay, in one form or another for the short fall.

Further as a result of this policy, consumption will not decline and there would be the potential for the before tax price to increase even further. Though the after taxes would not be as high this would still mean that more tax revenue would be lost then what would be regained through an increase in taxes.

High gas prices, if they are going to only last for a short period of time, would have some positive spillover effects. It would increase the demand for fuel efficient vehicles and would better prepare the population to deal with an oil crisis if and when it hits. While these benefits may not warrant paying artificially high prices they are something should be considered when deciding whether to temporarily provide tax relief.

If the high prices are permanent then reducing the tax only delays the response to the high prices. This means that people will put off adjusting their consumption until later, which if the prices are to remain high is just delaying the problem at the expense of decreased revenue.

Finally we will look at the reason why the taxes are there in the first place. Gas taxes are a form of Pigovian taxes. Pigovian work to correct the incentives of individuals in the face of external costs. What a gas tax does is works to give the individual the right incentives to consume gasoline in the face of external effects. Gas consumption as we all know pollutes and requires the use of public roads.

Charging the proper tax ensures that no one who values the good less then the total costs to society will purchase it. Even when prices are high the effects of pollution and road congestion still exist. Removing the taxes also removes the incentive to take into account the costs imposed on others. Removing the tax temporarily could lead to a movement to significantly reduce or completely remove the tax permanently resulting in additional costs on society.

This plan is slightly better then Bush's eliminate the pollution law's "plan", but not much. The costs still lie individuals who do not benefit from the plan.

(For information on what a Pigovian tax is see http://en.wikipedia.org/wiki/Pigovian_tax)

[rucky]

1. Gas tax is regressive.

my proposal is to issue swipe cards - kind of like EBT cards - that make people who qualify for public assistance exempt from the fed/state/local taxes at the pump.

[lostinacause]

9. You don't want a progressive gas tax. People who are poor

still do the same amount of "damage" that those who are wealthy do. In fact they usually drive cars that create more pollution and are less fuel efficient (though the fuel efficiency is probably fairly balanced because they don't own any hummers).

Discrete (have a cut off) changes in the amount of benefits individuals receive generally make it so that people are more inclined to stay on welfare. Increasing the payoff in a discrete manner such as this will have negative effects. Resources would be better allocated to things like better public transportation systems and programs designed to raise the human capital and by extension the salaries of people in this group.

[jsamuel]

17. a gas tax is a lazy policy, you want to PUNISH, not solve

You want to punish them for driving, lets just face it. That is the point of a gas tax, to punish those who drive so that they are discouraged from driving, even if they have to drive to get to the job that doesn't pay them enough to fill up their cars.

Democrats have always stuck up for the poor in the past and they better well continue or they will lose me and half the party in the blink of an eye.

There are 50,000 possible solutions if we can think of them, and many of those don't hurt the poor. Don't be lazy in planning.

See this thread:
http://www.democraticunderground.com/discuss/duboard.php?az=show_topic&forum=364&topic_id=984106

[lostinacause]

22. A gas tax is the right policy to deal with the externalities that are

caused by consumption of gas. It doesn't matter whether the person is rich or poor. There is no reason why the poor should not have to take into account, through a incentive mechanism, the damages that they place on others.

I agree that there a number of possible solutions to the problem but when evaluating which ones are best they will more then likely be of three different types: human capital development, infrastructure improvement, and institutional change. Externalizing costs on others is not a feasible long term (or even short term) solution to this problem.

[jsamuel]

26. heartlessness

When you hurt the poor to accomplish some theoretical goal, that is the gate to heartlessness. Republicans have been through that gate a long time. Democrats need to stay out.

[lostinacause]

28. When you design policies with you heart you come to the wrong

conclusions. You decide on the goals with your heart and then go about pursuing them in the best way possible. That is by using you mind to figure out what is ideal.

I don’t understand how you can say that putting resources to reducing the price of a good such as gasoline is the best way to pursue equality. Given that it is relatively easy to adjust behaviors and choices to reduce consumption reducing the price would have a high allocative inefficiency associated with it.

Perhaps when looking at policy you should do as I do. Figure out what you goals are and then go about designing smart policy. Caring about equality and efficiency are not and should not be considered substitutes. Just as someone wealthy should consider the wellbeing of the poor when making public choices so should the poor be concerned with how their choices affect the wealthy. It would hypocritical to do anything but.

[amandabeech]

38. Have you spent much time around people who really struggle

to meet the basic needs of life, like food and shelter. I mean really struggle away at $7.50 an hour jobs? I have. Energy prices are just killing these people, and they don't have the extra cash to trade in their 1989 Chevy clunker for something that gets better gas, like a 1999 Escort, that is if they can get themselves and their kids in the Escort. No Priuses here.

I'm with the previous poster here. The Democratic party used to be for poor and working people. Democrats used to make sure that any change in policy, tax or otherwise, would not end up removing the food from the mouths of those in the lower economic realms of society. Like the British Labor Party, the Democrats are increasing oriented to the upper middle class and are competing for the same votes as Republicans. And they are increasingly losing in that competition.

[Raine]

2. Great point

there was something about that plan that irked me and I didn't realize what it was till you pointed it out. It's a plan that does nothing to change future habits but only encourages more use of diminishing resources. x(

[sandnsea]

3. gas taxes pay for roads

in a country where large swaths have no choice but to drive a car to the doctor and grocery store, where many people wouldn't have any food or medicine if trucks didn't bring it to them. The gas tax is not a pigovian tax and was never intended to be. Repealing the tax for 60 days is not intended to do anything to solve the energy problems, Democrats have introduced several Energy Bills to do that.

Paying for the tax repeal with the oil industry tax breaks is intended to draw attention to the billions of dollars we're giving to an industry with record profits. It's to try to shake loose some of these people who are voting against their own interests. And help Grandma get to the doctor.

[Lasher]

4. I'm in favor of the Democratic proposal

I think it would be a good idea to temporarily (for 2 months) suspend federal taxes on gasoline and diesel, as Democrats have proposed to do. The measure would reduce the cost of gas by $0.184 per gallon and the cost of diesel by $0.244 per gallon. The lost revenue would be made up by cutting six billion dollars in tax breaks to oil firms. I like this part of the proposal for a couple of reasons:

First, I think the oil companies are making plenty of money without the Republican tax breaks. If you disagree with that, then let’s talk about the $400 million retirement package that retiring Exxon CEO Lee Raymond just received.

The second part I like is that it emulates an important aspect of Clinton’s effective economic policies: pay-go. Note that the proposal provides a way to offset the lost revenue.

When Bush began his presidency in January 2001, a gallon of regular gasoline was $1.44. Now that prices have doubled, a temporary reduction of 18 cents a gallon isn't much. But it sends a good message: Democrats are on the side of Americans, and Republicans are for corporations.

BTW, State taxes, which wouldn't be affected by this proposal, amount to more than the federal tax. Here's a site where you can see how much you're paying in state gas taxes:

http://www.gaspricewatch.com/usgastaxes.asp

Edit: Initially furnished wrong link

[lostinacause]

10. Given that I have not heard one person, Democrat or Republican,

justify the tax breaks to the oil companies I think they could be removed without including break on gas taxes. In reality taxes are not designated, rather people group policies together to get support for otherwise bad policies such as this one. If there was no recovery of lost tax income from oil companies would you agree that was still a good idea. If the answer to that is no then it is likely a bad idea to do them together.

The democrats should concentrate on long term plans that solve the problem at hand. There is no need to play the Republican card and make choices for short term gains that compromise the future success of the party and the country.

[Lasher]

30. Tax breaks to oil companies are not justified

These tax breaks are tribute that Republicans paid to the oil companies that own them. As such, it is not logical to suppose that an outright proposal to repeal them would be successful as long as the repukes control the Executive and Legislative branches. Case in point: Sen. Debbie Stabenow (D-Mich.) just introduced an amendment to repeal oil-company tax breaks and distribute $500 tax rebates to consumers. And you know what? It went nowhere.

I do not believe the suspension of federal gas taxes, or of any other taxes, would be a good idea without some corresponding recovery of the revenue that would be lost. I wish you would fairly consider the point I made about pay-go.

Short term and long term plans are not mutually exclusive. And helping the average American instead of focusing only on rich people and their corporations is not a "Republican card." It is a distinct characteristic of the Democratic party.

I can't think of a single way this proposal would "...compromise the future success of the party and the country" as you assert it would. Quite the contrary, it would give the common folks a little short term relief, although this would arguably be largely symbolic; it would help fend off Republican claims that all Democrats do is complain and never offer any solutions; and since we would come across as the good guys, it would help us capitalize on the anger against Dubya and his GOP.

Edit for spelling

[uncle ray]

11. sure, so they cut the tax breaks to oil companies

and eliminate the gas tax, so they oil companies just raise the price more. it will do nothing to stop price gouging, nothing to slow consumption.

[bowens43]

5. This line in particular is complete nonsense

'The people who are willing to reduce their consumption essentially pay so that people who consume significant amounts of gas can continue to do so.'

That is bullshit.


I'm in favor of the Democratic plan. The high gas prices are devastating to the poor and the middle class. If the high prices continue , the price of EVERYTHING will increase.

[lostinacause]

12. The money has to come from somewhere.

While it is packaged like the money is coming from the oil companies However, as I said in an earlier post, the tax breaks to the oil companies are going to be eliminated whether consumers get a break at the pump or not. There is the political will for it and there is no reason not to. Thus whether on not the cut to the gas tax goes into place revenue to the federal government has increased. Thus the money has to come from general revenues. Since the government is running a deficit this means the tax break to consumers would create a increased deficit. The increased deficit will have to be paid off by all Americans. We know that people have different preferences for driving that are only loosely based on the amount of tax revenue collected thus some have to be subsidized, those who consume significant amounts, and others have to be subsidizing, those who don't consume a significant amount of gas.

The prices will still increase under this plan they will just be hidden in a higher deficit. In addition goods that are not expensive to transport will go up in price and those that are expensive to transport will go down in price. Companies will also face strange incentives. Both of these follow from similar reasoning as the first thing I wrote.

Because it is relevant I have the equivalent of an undergraduate degree in economics.

[droidamus2]

6. Agree with the Democrats in general but...

Ok as a temporary fix to relieve the pressure on peoples pocketbooks I think this is a good idea and balancing the equation by making the oil industry pay for it is a great idea. My one problem is how do you keep the oil companies from just absorbing the drop in taxes. By that I mean if the current price is say $3.00/gal. and you drop the tax what keeps the gas stations from just leaving the price at $3.00 and getting even more profit? (yes I know the stations don't really set the price). The only way I could see it working is some kind of price controls a la Nixon in the 70's and that has its own set of problems.

[lostinacause]

13. To some extent excess capacity and losses due to price

fixing on the inframarginal unit would prevent the price from creeping back up to "3.00" even if there was collusion. In the unrealistic case of a perfectly competitive market the before tax price would still increase due to scarcity so even if there were no shocks. From a policy standpoint price caps would be a nightmare.

[radfringe]

7. 60 days .18cents a gallon does doodly-squat

when the price of gas jumps by that much in a week

meanwhile - republicans are touting a $100.00 rebate check to taxpayers..

http://seattlepi.nwsource.com/national/1153AP_Oil_Taxes...
---snip---

Senate Republicans advocate sending $100 rebate checks to millions of taxpayers, and a Democrat is leading the campaign for a 60-day gasoline tax holiday.

Either way, it seems no one in Congress wants to be without a plan, however symbolic, to attack the election-year spike in gasoline prices.

A vote is possible as early as this week on the Senate GOP approach, which calls for $100 rebate checks for taxpayers to cushion the impact of higher gasoline prices. The measure seems unlikely to prevail, at least initially, since it includes a highly controversial proposal to open a portion of Alaska's Arctic National Wildlife Refuge to oil drilling.


Folks - this is smoke and mirrors, call it "Petrol-Bismol" to ease the gas pains.

these band-aids aren't going to solve the problem in the long run.

We need real policies/legislation that addresses the problem. We need an energy policy that addresses fuel supplies for the long term - and that means not only gas for cars/trucks - but also for heating and other power needs.

[unblock]

8. this is pretty sound microeconomic reasoning, but

sometimes sound microeconomic reasoning has to take a back seat to election-year politics.

besides, if there is an equivalent amount of "gouging" going on, then perhaps the gouging premium makes the total cost accurately reflect the cost of the externalities, albeit paid to the seller rather than the external parties.

[blm]

14. I think exposing the oil companies tax subsidies IS good politics as well

as sound reasoning.

[lostinacause]

16. Could you elaborate?

[blm]

18. Well, the poster believes eliminating tax for customers was good politics

during an election year. I think the other Dem tact of exposing the gas companies and their tax breaks and subsidies to the voters and repealing those tax breaks is good politics AND has sound reasoning behind it.

[jsamuel]

19. agreed

I think it is sound election year or no.

[lostinacause]

25. Thanks, I had thought you meant something completely different.

[lostinacause]

15. I don't beleive this needs to be done. In the long run the Democrats will

likely be worse off if they continue to chase poll numbers like the "the insurgency is in its last stages" Republicans.

If you assume that market power is correcting the externality the analysis becomes quite a bit more complicated. Then there are a whole bunch of fun things that you have to consider: The relative weighting of monopolistic profits to consumer surplus, whether the tax rate was actually a Pigovian tax in the first place, and the extent of the deadweight losses from other taxes.

[blm]

20. Exactly - I personally despise when Dems use any political gaming on

any serious issue.

I believe Dems who seek real solutions will end up in the best of stead eventually.

[lostinacause]

27. Unfortunately many of the games work.

You would be amazed how often this actually happens.

[JerseygirlCT]

21. As you say, it allows people to continue to live in lala land

wrt gas usage.

It also does nothing to rein in the big oil companies, who are making money from this hand over fist.

I think it's the sort of blatant pandering that we've come to expect from the right, honestly.

[renate]

23. exactly--it takes the heat off the oil companies

Besides doing nothing more than postponing the inevitable, a cut in the gas tax will have to be made up somewhere (crappier roads because the budget to fix them gets cut, etc), and lower prices make the Republicans and the oil companies look better when all that's happened is that a temporary bandage has covered up the problem.

Make the OIL COMPANIES subsidize the gas tax. They can certainly afford to chip in a little.

[lostinacause]

24. A short term cut will have little effects on the level of gvt. services

It will just be something that has to be paid back later.

[flaminbats]

29. we need a windfall profits tax to make up for lost funds..

If this tax-cut passes..what happens two months from now?

at a minimum we need to make up for lost money..especially if this policy is extended!

[lostinacause]

31. Targeted tax increases have a whole set of problems associated with

them. I think they best thing to do would be to remove the tax break and implement a proper royalty system. Put some of money into the engineering and sciences at colleges and universities and put the rest toward reducing the deficit and paying down the debt.

[flaminbats]

37. repealing all of Bush's taxcuts might help pay for this war..

I agree targeted tax increases have a whole set of problems with them..this is why we shouldn't borrow trillions of dollars to finance taxcuts for the rich or to fight costly wars! the best thing for the future is to not cut taxes on gas, to phase out Bush's targeted taxcuts to help pay for this idiotic spending spree in Iraq, and then to use the Windfall Profits tax on energy companies to develop alternative sources of energy.

but as you mentioned earlier..this becomes harder to do, the longer Bush is allowed to cultivate our national debt!

[SmokingJacket]

32. I think the plan would transfer money from the govt to oil companies...

because companies could easily continue raising prices, just as they have been. What's to stop them from simply charging customers the same amount they have gotten used to paying, and getting that much more profit?

And how could this ever work on a temporary basis? Are they just going to reinstate the tax suddenly after three months? And let gas prices jump up suddenly like that?

Totally absurd, IMHO.

[lostinacause]

33. The price wouldn't rise by as much as the tax break.

The main thing that is preventing the price from being artificially increased is the risk of investigations.

This is actually one of the reasons why I don't necessarily believe that collusion is the main reason for the increases in the price. It seems the collusive outcome is foolish when prices are already high because of uncertainty, speculation and high demand. However even give these factors the price does seem quite a bit higher then it should be. Hopefully there will be some economic papers written about this over the next year or two.

[Neil Lisst]

34. I disagree with you. Dems should repeal the gasoline tax.

We need to be out front on it. Do it now, and let Bush and congress figure out how to make up the lost revenue. Push for it, and give the lower rungs a little relief.

The price is so high now, it won't do much in the long haul, but it's something to do between now and November.

[bling bling]

35. I disagree.

The Dems need to do whatever they can to help keep gas prices down. I personally know a single (divorced) parent with 5 kids and a deadbeat ex-husband. She makes $6.80 an hour and works 2 jobs to support her family. Each month she has to decide which bills she *must* pay and which ones she can be late on. She has no choice - she doesn't make enough money to afford even the basics each month. The difference in the price of gas is literally the difference between her being able to pay her electric or gas bill. The more behind she gets in her bills the more stressed she becomes and this affects her spirit in life.

The increasing gas prices is absolutely DETRIMENTAL to people who make at or near the minimum wage. The Dems should do what they can to help.

[mmonk]

36. Eliminating the gas tax is eliminating another source of funding

in a era of crushing debt. It's also playing along with the rightwing lies and dogmas and isn't REAL economics. It's NOT a source causing high prices. Exxon Mobil wouldn't be making RECORD profits if their costs of business were too high. Stop trying to copy republicans! They are scum.