Gas-Tax Holiday as a litmus test for POTUS

[Achilles]

...or "mimartin Has His Revenge".

 

For those of you living outside the U.S. or otherwise not following U.S. politics, presumed Republican Presidential Nominee, John McCain, recently proposed a National Gas-Tax Holiday to run from Memorial Day to Labor Day this year. The idea being that artificially lowering gas prices will provide economic relief for millions of Americans while stimulating the economy.

Please keep in mind that John McCain has previously admitted that economics is not his strong point.

 

But interestingly, Hillary Clinton has also jumped on the bandwagon and has even gone so far as to criticize her Democratic opponent, Barack Obama, for not hopping aboard as well. So who's right and who's wrong here?

 

From where I sit, this is not necessarily a bad idea, but is clearly not that well thought-out and should not be implemented. Let us consider the following economic concepts:

 

Supply - How much of something that is available. The Law of Supply tells us that all things being equal, the more of something there is, the lower demand will be (low scarcity), and therefore the more inexpensive it will be.

Demand - How much people want that something. The Law of Demand tell us that all things being equal, the more demand there is for something, the lower supply will be (high scarcity), and therefore the expensive it will be.

Scarcity - An indicator of the relationship between Supply and Demand.

 

So what do we know about gas prices in the Summer? They tend to be higher. Why do they tend to be higher? Because demand is high. Why is demand high? Because a lot of people travel (presumably for vacation) during the summer?

 

So, utilizing the laws of supply and demand, how can we use natural market tools to reduce gas prices during the Summer season? We can either:

 

a) Increase supply. Increasing supply will reduce scarcity for as long as supply can keep up with demand.

 

b) Decrease demand. Decreasing demand will also reduce scarcity so long as demand does not creep back above supply.

 

So why do I think the National Gas-Tax Holiday will fail? Because the proposal does not directly address either supply or demand (it does indirectly make a show of addressing supply by suggesting that we open up the Strategic Oil Reserves, but I agree with Bush that this is a bad idea. Yes, you heard me correctly . More on this in a moment). What it will accomplish is artificially lowering gas prices on a temporary basis. But because we're not addressing supply or demand, what will happen?

 

That's right. Because demand is unaffected (all things being equal), there will still be a strain on supply and, guess what, natural market forces will drive the price of gas right back up again. So who will really get the gas-tax holiday?

 

The oil companies

Well, what about supply then? What can we do with supply? I suppose a couple of things.

 

a) We could increase oil production or

b) We could artificially flood the market with cheap oil

 

What's wrong with option "a"? We can't increase oil production, that's what. Oil refineries already run at-capacity during the Summer which is why gas prices usually spike even under normal conditions. Keep in mind that as Africa and the Middle East experience a lot instability, a monstrous proportion of our oil supply will be on shaky ground. And guess what that does to the oil market (hint: a barrel of crude went for approximately $34 the month we invaded Iraq).

 

So what about option "b"? From a logisitics standpoint, the Strategic Oil Reserves hold about 700 million barrels of oil. Americans consumer approximately 20 million barrels of oil per day. So we have about a month's supply. Granted, we'd only be supplementing the oil market rather than attempting to artificially sustain it, but the question remains: How much are we going to use? Also, how much is needed to make a significant difference?

[edit] FYI: according to wikipedia, we can only pull 4.4 million barrels per day presumably because of the logistics of moving that much oil.

 

From a strategic standpoint, this is foolish. I agree with President George W. Bush that tapping into the Reserves is a bad idea. That oil is there for when crisis strikes (i.e. Israel and Iran start nuking each other and a couple of missles go astray and hit Iraq, Saudi Arabia, and Kuwait, et cetera). Jeopardizing our long-term well being so that Jimmy can get Mickey ears at Disneyland is not what I consider to be a rational decision.

 

So what's left? It seems to me that if we want to keep gas affordable this Summer, the best way to do that is decrease demand (i.e. stay home). But the point of this thread was not to climb atop a soapbox and tell you want to do with your free time, rather to point out the interesting dynamics that this raises regarding the presidential race.

 

McCain has told us that he's not too good with the economics. I appreciate his honesty. Indeed that actually casts this decision in a light that I can easily understand. Knowing that he doesn't know what he's talking about makes it much easier for me to see him as an otherwise intelligent guy that just doesn't know a whole lot about this particular subject. Great. Now step away from the White House and let someone that knows what they're doing be President. Thanks.

 

Hillary is another story though. She's shown us time and time again that she's willing to say or do anything to secure the nomination. Is economics her strong point? She sure claims that it is. So I'm left to conclude that she probably knows better but is willing to screw us and help out her lobbist buddies in order to become President. This would seem to be pretty consistent with everything else she's done this campaign.

 

And what about Barack? He's the only one out of the there opposing the proposal. *Shrugs*. I can't help but think of all the times he's said that he won't tell us what we want to hear, but he will tell us what we need to hear.

 

Thanks for reading.

[Totenkopf]

Was this an Obama '08 commercial?

 

I agree that tapping the strategic reserve is basically stupid. @18.4 cents/gal, that's a pitifully small economic stimulus that's good for ~4-5 months. Amounts to <$100 (perhaps as little as $25-50).

 

Your right about McCain being candid, as least, about his knowledge of economics. Sadly, he's probably the only one of the three that is. Guess that's why a president needs to pick good advisors/cabinet choices, since noone can know everything about everything.

[EnderWiggin]

So wait a second Achilles.

 

Are you saying that there is nothing that we can do to lower the gas prices?

 

You gave two options.

 

One was to increase supply, which isn't a feasible option.

One was to decrease demand. You can't expect the government to tell me that I can't drive to where I need to go this summer in order to keep gas prices low.

 

And you say that this plan will temporarily lower the cost of fuel but the demand will strain supply and the prices will be raised to compensate. This would be a serious problem once the gas tax was reimplemented.

 

I can agree with all three of these points... but then what is a candidate to do?

 

And I also hope that you're not tauting Obama for his reservation. You and I may know what we need to hear, but the general public doesn't, and what they want to hear is what wins the votes. This won't get him in the white house, even if it is the right decision.

 

This coming from a person who will vote Obama in Nov. 08.

 

_EW_

[MdKnightR]

Well, for once, I agree just shy of wholeheartedly with Achilles. That was wonderfully presented.

 

Now, as far as who to elect for president, I say the American people need to drop McCrack, Billary, and Osama and choose Ron Paul with the reasonable expectation that he will choose Walter Williams (an economist) as his running mate.

[Achilles]

So wait a second Achilles.

 

Are you saying that there is nothing that we can do to lower the gas prices?

Not exactly. Decreasing demand will ease pressure on supply which will result in lower prices...until demand (use) starts going up again. But from a bigger perspective, I suppose you could say that there is nothing we can do. Depends on how deep into the issue you want to delve.

 

You gave two options.

 

One was to increase supply, which isn't a feasible option.

Correct.

 

One was to decrease demand. You can't expect the government to tell me that I can't drive to where I need to go this summer in order to keep gas prices low.

Yes and no. Decreasing demand will (all things being equal) drive prices down, however I'm not advocating that the government tell us to do anything. If we were to honestly assess the situation with all the facts, I think it would be in our best interests to voluntarily (i.e. of our own volition) not do a lot of driving this summer. Also, since this is a global energy issue, this goes for people not in the U.S. as well.

 

And you say that this plan will temporarily lower the cost of fuel but the demand will strain supply and the prices will be raised to compensate. This would be a serious problem once the gas tax was reimplemented.

Yep and yep

Keep in mind that gas prices naturally dip in the Fall as the "Summer driving season" ends. If the sunset on the tax holiday and the natural market moves miss each other, then, yes, gas could be incredibly (and artificially) expensive for a few days or weeks.

 

I can agree with all three of these points... but then what is a candidate to do?

Err...not lie to us or make stupid proposals for quick political gain?

 

And I also hope that you're not tauting Obama for his reservation. You and I may know what we need to hear, but the general public doesn't, and what they want to hear is what wins the votes. This won't get him in the white house, even if it is the right decision.

How unfortunate, huh?

 

I guess the best we can try to do is help educate others.

 

This coming from a person who will vote Obama in Nov. 08.

 

Take care!

[Web Rider]

So, we'll save...what, 18-30 cents a gallon? The average person will save at best 5 bucks a tank, unless you have in excess of a 30 gallon tank. States and the feds will severly suffer in terms of funds, road crews will essentially not get paid since their paychecks come out of the related car-tax funds.

 

So yeah, people will save 20 bucks in a month, between the two days, they'll sve a hundred bucks. Gee whizz McCain, you're a moron, you too Hillary.

 

The problem is price gouging from oil companies, and a weak dollar, not 20 cents of tax.

[Achilles]

States and the feds will severly suffer in terms of funds, road crews will essentially not get paid since their paychecks come out of the related car-tax funds.

Indeed. An excellent point that I failed to address in my post. Don't forget that we have bridges collapsing, etc as it is.

[Totenkopf]

Well, the states won't go completely starved for 5 months as it's a federal moratorium that's being proposed, not the other ~28.5 cents/gal that the states average in gas taxes. Geez, guys, if you're going to "educate" people, try presenting more than just your slant. Also, one has to wonder where all the gas taxes have gone previously to this, as it's a pretty good bet that's where the money would go in the brief span as well. Just like the 18.5 c/gal tax won't do anything to stimulate the economy, it won't wreck America's infrastructure either.

 

@MdKnightR-if he chose Walter Williams, that would be a good start.

[Jae Onasi]

The analysis is good but there's one other variable that affects the supply, and that is the summer 'boutique' gas blends that artificially decrease supply. I live in the Milwaukee-Chicago megalopolis region, and come May, we switch from winter blend to summer blend gas to lower ozone emissions. We go from 1 (or a few) gas blend to 20+ types in the US in the summer (last I heard--numbers may have changed). That means that all the winter blend has to get used up before the deadline for the summer blends to be put in place at the pump, and if something happens to the refineries during the days or weeks they're making the blend for your particular area and it decreases the supply, the prices can (and have) skyrocket in your particular area. That's happened in my area--we've had some outrageous price spikes because the supply of our particular blend got nuked by some Gulf storms, the refineries couldn't catch up and we couldn't use blends used in one of the other 20+ areas.

 

So, in the summer we go from one large supply to 20+ smaller supplies, and that supply is much more sensitive to things like Gulf storms, pipeline breaks, oil prices, gov't instability in oil-producing nations, an oil executive sneezing, etc. That further aggravates and magnifies the problems that Achilles noted above.

Reps Blunt and Ryan have introduced The Boutique Fuel Reduction Act of 2007 to deal with this problem. Unfortunately for us this year, it seems to be gathering dust in committee.

 

I'm all for cleaner air and reducing ozone, and I don't mind using a cleaner blend in the summer to do that (though I wonder why we aren't using them year round). However, it makes far more sense to have a few blends rather than the 20+ or more different kinds that I've heard are currently in existence.

[Achilles]

Yep. In my posts, I made reference to "all things being equal" (ceteris paribus is the latin term that economists use). Economists use this to try to isolate factors in order to predict behavior in stable market. So under stable market conditions, supply and demand will drive prices up in the summer. Remove those parameters and toss in the general wackiness that Jae does a good job of outlining above and all bets are off.

 

Regardless, the proposed gas-tax holiday isn't going to accomplish much of anything aside from helping McCain and Clinton to give the appearance that they care about little people.

[SilentScope001]

What's wrong with option "a"? We can't increase oil production, that's what.

 

Yes we could. One word: Alaska.

 

Oh wait, none of the candiantes want to drill there. Never mind.

***

On the other hand, yes I disagree with this gas-tax hoilday, but that doesn't mean I'll vote for Obama. You vote based on the 'package' of the person, not just on indivudal policies. I don't like McCain's position on this issue, but in the end, I hate Obama's positions on other issues. It is a known fact that you are the only person who knows what is right for America, and that everyone else are morons who don't know what to do. Venting about a person not adopting one single point isn't going to do well.

 

For one thing, the gas-tax holiday has been proposed several times, even by Presidental Candinate Bob Dole. Every time it got in Congress, it failed. Miserably. So, I doubt McCain and Clinton will ever get this passed.

 

Secondly, a gas tax hoilday at least save some money. Other, 'reasonable' policies will take more time, may not actually be effective as its defenders claim it would, and is rather likely to fail overall, because of the fact that we aren't the only consumers of oil. We got China, we got Russia, we got developing countries who are turning developed. So we are going to have to live with high gas prices for a long, long time. Hopefully, the Fed can start caring about inflation before it's too late.

 

What I...might...be open to is just decreasing the tax rate for the entire year, rather than just a holiday in general. And a previous Republican proposal to give us all $100 gas tax rebates actually now look reasonable, so I might be open to that too. But, eh.

 

The only thing I'm suprised is that I thought this gas-tax holiday would be nothing more than a gaffe and that nobody would care. I was wrong. Maybe McCain's policy isn't that terrible at all, and prehaps all this 'pandering' nonsense may actually be, I don't know, actual democracy in action, with presidental candinates actually listening to voters.

[mimartin]

Yes we could. One word: Alaska.

Hit the nail on the head for the reason for the higher gasoline prices.

 

1. Oil companies and Chaney have secret meeting.

2. Administration policy becomes opening up the Alaska National Wildlife Reserve to exploration.

3. Congress does not approve proposal.

4. Gas prices climb to record highs while the same oil companies post recorded earnings.

 

Now the rest of the plan:

 

5. Popular opinion changes forcing congress to open AWAR to exploration.

6. Oil companies pay American Taxpayers next to nothing for drilling rights.

7. Due to cut in cost, oil companies continue to post record profits and the American taxpayer, use to three plus dollar gas prices, has the price cut to $2.75 a gallon and counts themselves luck.

 

Yea, it a win, win for big oil companies.

 

For what it is worth both Obama and Clinton stated in their last debate that the oil companies needed to be investigate. Great we spend millions on an investigation, but the blue print of this is safe for now, at least until George W. Bush records are released. By that time, one of the twins will be President so we will never know.

 

Well that is my conspiracy theory.

[EnderWiggin]

Yes and no. Decreasing demand will (all things being equal) drive prices down, however I'm not advocating that the government tell us to do anything. If we were to honestly assess the situation with all the facts, I think it would be in our best interests to voluntarily (i.e. of our own volition) not do a lot of driving this summer. Also, since this is a global energy issue, this goes for people not in the U.S. as well.

 

....Achilles....... really? You and I both know that the public will never ever honestly assess the situation with all the facts first of all, and second of all make personal sacrifices for community- or even world-wide gain. So we here can limit our driving this summer, but the average American will never of their own free will decide to do so. So while this is a way that we can lower gas prices in theory, it is impractical to think that it can be implemented.

 

Err...not lie to us or make stupid proposals for quick political gain?

That would be quite unlike our politicians.

 

How unfortunate, huh?

It certainly is.

 

 

Take care!

 

To you too.

 

_EW_

 

PS.

Yes we could. One word: Alaska.

 

No. Just No.

[Achilles]

....Achilles....... really?

Yeah. Really.

 

You and I both know that the public will never ever honestly assess the situation with all the facts first of all, and second of all make personal sacrifices for community- or even world-wide gain. So we here can limit our driving this summer, but the average American will never of their own free will decide to do so. So while this is a way that we can lower gas prices in theory, it is impractical to think that it can be implemented.

"Practicality" has absolutely nothing to do with whether this is the answer or not. It really doesn't. I think you might be mistaking my post for some sort of wake up call or call to arms. It isn't. I merely hope to draw your attention to which politicians are lying to you and which ones aren't (and hopefully what we stand to gain or lose via our participation or apathy).

 

That would be quite unlike our politicians.

And politicians are elected how? They keep lying and we keep voting for them. Then we wonder why they keep lying.

[EnderWiggin]

Yeah. Really.

 

 

 

"Practicality" has absolutely nothing to do with whether this is the answer or not. It really doesn't. I think you might be mistaking my post for some sort of wake up call or call to arms. It isn't. I merely hope to draw your attention to which politicians are lying to you and which ones aren't (and hopefully what we stand to gain or lose via our participation or apathy).

 

Fair enough.

 

And politicians are elected how? They keep lying and we keep voting for them. Then we wonder why they keep lying.

 

I never disagreed.

 

 

_EW_

[Q]

Hit the nail on the head for the reason for the higher gasoline prices.

 

1. Oil companies and Chaney have secret meeting.

2. Administration policy becomes opening up the Alaska National Wildlife Reserve to exploration.

3. Congress does not approve proposal.

4. Gas prices climb to record highs while the same oil companies post recorded earnings.

 

Now the rest of the plan:

 

5. Popular opinion changes forcing congress to open AWAR to exploration.

6. Oil companies pay American Taxpayers next to nothing for drilling rights.

7. Due to cut in cost, oil companies continue to post record profits and the American taxpayer, use to three plus dollar gas prices, has the price cut to $2.75 a gallon and counts themselves luck.

 

Yea, it a win, win for big oil companies.

 

For what it is worth both Obama and Clinton stated in their last debate that the oil companies needed to be investigate. Great we spend millions on an investigation, but the blue print of this is safe for now, at least until George W. Bush records are released. By that time, one of the twins will be President so we will never know.

 

Well that is my conspiracy theory.

And a darn good one it is. I thought exactly the same thing before I read your post.

[Totenkopf]

Just keep in mind that whatever "big oil" pays for those rights will only end up being reflected in the final cost of the end products. The more they pay....the more YOU pay.

[mimartin]

Just keep in mind that whatever "big oil" pays for those rights will only end up being reflected in the final cost of the end products. The more they pay....the more YOU pay.

In theory…only in theory… Why do you think gas price go up without the station getting new inventory? I mean they know what the cost was to the station when it was unloaded from the truck. The cost to the manufacturer or the station has not changed, yet the price to the consumer goes up. The price on gas is based on the future price on oil, or in other words, it is all speculation. So let say they get the oil from AWAR (that is if there is oil in the quantity and quality we have been told at AWAR) at some ridiculous low cost, that would effect world wide supply and the future cost of oil. The savings would be past on based on the World Wide decrease oil prices, not the actually price of the oil taken from AWAR and cost to process that oil into gasoline. While Americans and the world market would save a little, the oil companies would continue to clean up (and I do not mean clean up the environment).

[Totenkopf]

As I said before, the more "big oil" pays for the commodity, the more you pay for the end product. All corporate taxes are merely indirect taxes on the general population. Companies that don't make money go out of business or move into new opportunities. Seems to me that if you want to significantly lower the cost of oil, you have only a few options. Heavily regulate the commodity markets, strongarm OPEC or do a combo of opening up more access to source (ANWAR/offshore/synfuels like coal derviatives) while developing alternates to crude that would significantly lessen our dependency on that commodity. Or some combo of all of these. If you start penalizing the oil companies for "price gouging" (despite numerous congressional investigations, no proof of a conspiracy has ever been "found"), what industries come under the gun next? Agribiz? Big Pharma? Stadium prices (or any other "discretionary" expenditure on our parts)?

[Jae Onasi]

I know we're going to decrease our driving this summer, except for a vacation that we had planned already (the Disneyworld pilgrimage). We may end up trading off comfort of the minivan for the better gas mileage of the Civic because we know gas prices in June are going to be atrocious.

 

The family's old enough that we can ride bikes and walk more often and farther, and I don't feel like contributing any more to oil corporation profits than I have to. Some of this may be self-correcting, too--at some point people are going to decide they just don't have enough money to pay for gas to drive, and demand will drop. Now, it may not drop _much_, but I don't think some families can take the price hit that we're expecting this summer.

[mimartin]

Seems to me that if you want to significantly lower the cost of oil, you have only a few options. [/Quote]

By the same token (no pun intended), if you want to raise the speculated price of oil and thereby increase the price of gas. 1. Upset oil producing nations. 2. Un-stabilize the region, by say, starting a war in the middle of it. You don’t even have to go as far as doing either, just threats can spook investors and increase the cost of futures.

 

If you start penalizing the oil companies for "price gouging" (despite numerous congressional investigations, no proof of a conspiracy has ever been "found")

I wrote in my first post in this thread that an investigation is useless, made all the more useless by that fact of how much money big oil companies pays Congress. Congress would spend millions of dollars, put on a good show for the voters and then do nothing.

 

I will continue this discussion if you want after today, but I will not be critical of oil companies after today or gas prices. After today, I will be one of the causes of increased gas prices so it would be hypocritical of me. I pick up my 16 mpg city Jeep this morning so I will be adding to demand.

[Totenkopf]

I don't disagree with your first point. Open threats would certainly be seen as bluster and would result in upward pressure on prices if it then looked like you were going to follow through. There are likely other ways to strongarm than outright invasion. It's also likely that going after the speculators would require some kind of international cooperation to be effective, given that oil is a world market and not merely a national one. Equally true of currency manipulation in general.

 

To your second point, I'd say that's what many feel is/has been done now anyway. You can be as critical as you want about gas prices (food prices too), but know that any financial pressure on the oil companies will only likely be refelected at the pump as well in the end in the form of even higher prices. It would be interesting, even if only as an experiment, to see what a mass attempt at conserving fuel thru less driving would ultimately do to the price of oil and the economy at large. So, enjoy your jeep, but do so sparingly.

[ForeverNight]

Well... I can't say that I know everything about this issue, but it seems to me like it is a good idea, or, failing that, one that has merit... The tax holiday that is.

 

With the price of Crude rising, the price of gas goes up, and the Government gets the brilliant idea to tax the gas more! Brilliant idea, gas is already on the upward swing, and you decide to make it higher! Then complain about high gas prices!

 

That's Washington......

 

But, with the tax break, well, lets put it this way. It's what? 18.5 Cents tax per galleon that they're talking about taking off?

 

Gas around where I am is $3.239 for 87 Octane. Shaving 18.5 cents off that makes it $3.054 to the galleon. While that doesn't sound like much, I know that that in itself will save at least $1.80 a re-fill for my family's mini-van, probably more.

 

And, re-filling it about 1.5 times a week (Quick math in my head), that saves $2.70 a week, $10.80 a month and $54.00 in the five month period. That's enough for several refills that were previously covered.

 

And, I know that during the summer, our gas usage will go up -camping among other things- and, thus, the numbers above will change.

 

So, the Senator's proposal has merit... is it likely to pass? No. The Senate is filled with people who just want to either get elected, spend as much money as possible, or both. So, they will see the gas tax as a way to get more money in their coffers, and then spend MORE than what they will earn from it.

 

But, D.C. is not a place for responsible spenders... At least, that's how it seems from the outside.

[Achilles]

With the price of Crude rising, the price of gas goes up, and the Government gets the brilliant idea to tax the gas more!

Not quite. The idea is that they suspend the existing tax. No one is talking about increasing the tax.

 

Brilliant idea, gas is already on the upward swing, and you decide to make it higher! Then complain about high gas prices!

Yeah, that would suck too if that was happening. Get this though: oil companies do currently collect subsidies. How awesome is that!?

 

But, with the tax break, well, lets put it this way. It's what? 18.5 Cents tax per galleon that they're talking about taking off?

No not really. As I pointed out in the first post, those prices would only be artificially lowered until demand caught up and raised prices right back to where they would have been anyway. So yeah, you might save that $1.80 for a tank or two, but then you're right back where you were or worse.

 

In the mean time, that's 13.5 cents per gallon (times 400 billion gallons per day) of revenue that isn't paying for federal highway repair, bridge maintenance, etc.

 

So if that money isn't really being saved by us and the federal government isn't getting it, who is? The oil companies, that's who.

 

So, the Senator's proposal has merit...

I respectfully disagree. The Senator's proposal is blatant pandering to anyone that has ever taken an Intro to Economics course.

 

But, D.C. is not a place for responsible spenders... At least, that's how it seems from the outside.

You know, some of us could contact our elected officials and point out that this is a bad idea. Just a thought

[Jae Onasi]

Here's the webpage for finding and contacting your Senators. This is the page for finding and contacting your Congressional Representative.

 

You can sign up for newsletters from your Senators and Representative--I get one emailed from them regularly.