Gas Tax Redux

Last week I posed a simple challenge: Try to find any coherent economist willing to support the gas tax holiday proposed by candidates McCain and Clinton.

The challenge remains unanswered, but here’s some interesting commentary collected during the week:

1. George Stephanopoulos posed my challenge directly to Senator Clinton (video here), asking: “Can you name one economist — a credible economist — who supports the suspension?”

After Clinton side-stepped the question, he pushed on: “But can you name an economist who thinks this makes sense.” Clinton’s response: “Well I’ll tell you what, I’m not going to put my lot in with economists.” (HT: Mark Thoma)

2. Sam Stein took my challenge fairly directly, playing the economics version of “Where’s gas-tax-supporting Waldo now?”

He tried Clinton’s spokesperson, libertarians, conservatives, progressives, ex-Clinton staffers, even the transportation workers union or the American Trucking Association, but still couldn’t find any support for the gas tax holiday.

3. Greg Mankiw received a note from Len Burman:

Yesterday I was on the NewsHour to talk about the gas tax holiday. I asked if there was another guest and the producer said, “We tried, but couldn’t find anyone to argue the other side (that the gas tax holiday made sense).”

4. By contrast, Henry Aaron from Brookings, managed to very quickly whip up a list of 150 economists opposed to the gas tax holiday. And there are some pretty impressive folks on the list, from across the political spectrum.

This makes me proud to be an economist. In any election silly season, you can usually find someone willing to support just about any kind of nonsense. And reality T.V. teaches us that people are often willing to do or say nearly anything to get their faces on T.V.

But it appears that the economics profession just isn’t that silly.

My $0.02: This issue isn’t that important in the grand scheme of things. But hopefully sufficient negative reaction to silly ideas this early in the election season will deter future silly ideas when the election heats up.

Finally, for those interested in economic research on the effects of a gas tax moratorium on gas prices, let me suggest a recent paper by Joe Doyle and Krislert Samphantharak (available here). There are reasons to think that the previous state-level gas tax reductions they study may not provide perfect guidance to the current proposal, but it is a start.

[Freakonomics trivia: Steve Levitt was Joe's dissertation advisor.]

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COMMENTS: 43


  1. rob says:

    I’m offended that McCain and Clinton think that people are so stupid that their votes will be swayed by saving a few cents everyday. I’m glad that there’s so much coverage of the fact this tax suspension, if anything, will have a negative impact on the economy.

    This election is making me more and more depressed everytime I hear about it.

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  2. DJH says:

    From the article: “Clinton’s response: ‘Well I’ll tell you what, I’m not going to put my lot in with economists.’”

    Oy vey! How popular will this make her, among readers of this blog? :)

    I suspect the people most likely to look for academic support for the gas-tax suspension would be the trucking industry, not the politicians who’ve been grilled on it. If the industry hasn’t come up with anyone … that about takes care of it, no?

    Oh, and I guess this puts to the lie the oft-stated canard that if you look hard enough, you can find an economist somewhere who will say just about anything (based on the assumption that economics is so “iffy” that it can be spun any way one wants).

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  3. Clint says:

    I know that you’re not intending to influence this sentiment, but I’m less and less compelled to vote. Aside from my vote being less than a fraction of a drop in the bucket, I’d be casting my vote for a candidate with no concept of economics.

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  4. an economist's nephew. says:

    Hillary supports the tax holiday and said, “I’m not gonna put my lot in with economists.”

    While this speaks volumes about her ignorance on basic supply/demand principles, it says more about her unwillingness to admit a mistake and willingness to pander to a perceived base. Sounds like she wants to be The Decider II.

    Maybe there should be a pants suit tax.

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  5. TSW says:

    My job is doing PR work for the recreation vehicle. Logically, I keep track of trucking interests since their issues and ours intersect on occassion. Last week I received an email from a trucking industry association — saying that the gas tax holiday is a bad idea.

    And they’re right — it IS a bad idea. Hillary is embarrassing herself trying to argue for it. Just admit it’s a bad idea and move on.

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  6. Tre Jones says:

    Bryan Caplan has attempted to do so on his blog, EconLog: http://econlog.econlib.org/archives/2008/05/ill_shill_for_h.html.

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  7. Matt, Ohio says:

    Hillary knows that the gas tax suspension is a stupid idea, just as same as she knows that giving a victory speech in a state where she was the only one on the ballot is stupid. It’s nothing more than political posturing and spin.

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  8. gwu econ says:

    LEVITT & DUBNER ’08 !!!!

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  9. MRB says:

    Given the flack that Obama has (is) taking for Jeremiah Wright,

    can Obama please hammer Hillary’s head in with the hammer of the ‘tax holiday’?

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  10. Chris U says:

    I’d like to find all the occasions when H Clinton has pointed to an economist’s opinion as a support of one of her polices. I bet there are more than a few.

    http://www.factcheck.org/video/clinton_obligationwmv.wmv
    She uses a Paul Krugman quote in support of her health care plan (and clearly calls him an economist).

    On this press release she quotes Jonathan Gruber, a “health economist”
    http://www.hillaryclinton.com/news/release/view/?id=7324

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  11. Kevin C says:

    rob,
    you can be offended all you want, but, unfortunately, the assumption “that people are so stupid that their votes will be swayed by saving a few cents everyday” is probably an accurate one.

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  12. Jim says:

    Any science is defined by what it ignores. Economics is no different, and it’s ignoring a lot in this case.

    The gas tax holiday is a sign that the government is doing something to help people and the economy. If people think something is being done they’ll be more optimistic, which will actually help the economy.

    Think of it as an economic placebo. Placebos work, and they work better the more expensive they are.

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  13. Mayor Quimby says:

    As I understand it, Clinton is courting the undecided conservatives and she and McCain feel those voters have a sentimental soft spot for any and all tax reductions and a resistance to economic contexts.

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  14. Matoli says:

    For my second H. L. Mencken quote here this morning: “If a politician found he had cannibals among his constituents, he would promise them missionaries for dinner.”

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  15. Helen says:

    @4 -

    As a former student of Latin American politics, I’m actually quite relieved to hear that Hillary says she isn’t going to throw her lot in with the economists. The gas tax holiday plans put out by McCain and Clinton are inane, but her retort to the questioner is not, in and of itself, a negative thing for this (undecided) voter.

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  16. Rich Wilson says:

    In the same ABC segment she reiterates her call for a moratorium on foreclosures and an interest rate freeze.

    Sorry economists, we don’t need you anymore. We’ll just regulate nirvana from here on out.

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  17. AaronS says:

    Someone wisely said that if you laid every economist end-to-end in the Sahara Desert, they would still reach no conclusion.

    Very simply, economics is, in some ways, like psychology (and is likely related). That is, it has enough logical/scientific underpinnings to make it respected…but then it all comes a bit unglued when it gets beyond theory and into realism. In fact, I’ll bet a Coca-Cola that I can come up with as good an “economic” reason to end the gas tax as economists can come up with to keep it. Here goes…

    Yes, keeping the gas tax works to drive down consumption. Given.

    But, consider that many people are simply doing NECESSARY driving–to work, home, school, etc. These people’s discretionary income is being hurt. They’re going to have to ask for more money from work, cut back on education, stop buying things, or use the credit card.

    Consider what happens if truckers strike because of the cost of fuel. Food prices skyrocket. People demand salary increases to keep up with the cost of living. And there you go.

    I’m not saying Hillary is right and the economists wrong, but like buying or not buying a stock, you can usually find good reasons for either course of action.

    And if there is any group on earth that I don’t trust to have the answers, it’s economists. If they had the answers, everyone would have either agreed with–or disagreed with–Reagonomics.

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  18. AJ says:

    I don’t think I’m saying something here that most in this forum don’t already know but here goes. Correct me if I have this wrong.

    The demand for gas is highly inelastic and all politicians know this. Any excise tax (i.e. windfall tax on profits) placed upon the oil companies by the govt will just be passed on to the consumer as an increase in the price of gas. Since the demand for gas is inelastic, the tax incidence will pass to the consumer, not the producer. However, the govt will still get their tax money as they had in the past.

    Most people have no concept of the taxing of highly inelastic products and who actuallly bears the burden of the tax. That demand curve needs to change before any real drop in price will be seen. The govt up to this point has said alot but done nothing because they know what really is going on behind the scenes. Why would they want to ruin a good thing?

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  19. kebko says:

    AaronS: You owe me a coke.

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  20. mmm says:

    But you don’t have to be an economist to know how stupid the gas tax is for the purposes stated. To name a few:
    1. In the short run, the tax savings will be kept by either the oil companies or the distributors or the station.
    2. Even if the prices are forced down by competition, the cost will increase with demand.
    3. Even if you assume the best, the everyday consumer will likely save less than $50 over the course of the holiday. A trucker driving more will likely save more but it’s unclear that trucking companies would ever price the temporary adjustment into the cost of shipping goods–companies don’t usually change shippers all of the time.
    4. From a liberal policy perspective, encouraging more driving is not entirely consistent with Hilary’s other positions.
    5. The money will be taken from somewhere: probably transportation funds. Crappy roads and bridges will actually increase the costs to consumers.

    Hilary and John are pandering, plain and simple.

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  21. Ari Indik says:

    I think you could find economists who would favor a repeal of the gas tax. But that’s not what Clinton and McCain are proposing. They are proposing a temporary holiday, which has none of the long run benefits of a repeal with most of the costs. You won’t find an economist to support that. And if you did, you certainly won’t find one who supports replacing it with a windfall profits tax (this because economists understand tax incidence).

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  22. jblog says:

    To borrow a phrase from Francis Ford Coppola, accusing politicians of pandering is like handing out speeding tickets at the Indy 500. It’s all one big panderfest

    McCain and Clinton offering to allow people to keep a little more of their own money is no more pandering than Obama telling members of the wholly corrupt teamsters union they don’t really need all that government supervision.

    Ultimately, suspending the gas tax will probably not affect consumption one way or another, and it probably won’t help people out much economically. But it won’t likely cause much harm either, and at least it’s a nod that the two candidates proposing it get it that people are feeling the pinch.

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  23. Mike says:

    Now that Clinton has said she won’t bother listening to economists, I wonder if Paul Krugman (another NY Times columnist) will rethink his support of Clinton. His column regularly bashes Obama as wrong or echoing the Republican line, and just as regularly lauds Clinton. Will this change his stance? Somehow I doubt it, he’s in too deep.

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  24. Josh says:

    @ Jim #12

    I think that is the point. I am fully aware the gas tax holiday is practically meaningless. But I haven’t seen anything from the Obama camp with a better alternative. I’d rather see a candidate trying than doing nothing.

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  25. Ray G says:

    I’ll second the blog entry of Bryan Caplan (a highly credible ecnomist).

    http://econlog.econlib.org/archives/2008/05/ill_shill_for_h.html

    But, as he says, it’s not what the Hill camp want or how the American people want to hear it.

    He does make one very astute observation though; if such “crises” were just as likely to spur tax cuts as they were the economically destructive populist measures that politicians are more prone to, then yes, a tax cut would help in that we might avert other measures.

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  26. sirhcton says:

    Curiously, you cannot seem to find anyone directly questioning Mr. McCain and staff. Since he also (and originally?) proposed the tax holiday, should he not also recieve an equal opportunity?

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  27. mike says:

    okay now let’s take a deep breath. Is it possible that Clinton’s idea makes bad economic sense and also makes good sense? Is this a possibility?

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  28. Bill says:

    I am a Democrat, and I understand government has a role in our lives, but Sen. Clinton is trying to give us a free lunch. This is the same candidate who wrapped all of her proposals up in Christmas wrapping for an ad in Iowa — universal pre-k or health care or whatever were gifts for the politicians to give to the voters. Everything has a cost, even if you say you are shifting the cost to the oil companies or the hedge fund managers.

    As I understand them, the cap and trade proposals now pending on the Hill would impose the carbon tax at the beginning of the chain — the wellhead or the mine gate. Shouldn’t the ultimate users of carbon — drivers or electric consumers — see the impact of their use?

    Oil and natural gas were remarkably inexpensive for nearly 20 years and we are now paying the economic and environmental costs.

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  29. Mike54 says:

    I suggest that gasoline consumption will not increase measureably if the tax is removed.

    If the price is unaffected by removing the tax, why not triple the tax? The gov gets more revenue and the folks pay the same price per gallon.

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  30. eddy says:

    I am in favor of cutting taxes under any circumstances and for any excuse, for any reason, whenever it’s possible. The reason I am is because I believe the big problem is not taxes, the big problem is spending. The question is, “How do you hold down government spending?” Government spending now amounts to close to 40% of national income not counting indirect spending through regulation and the like. If you include that, you get up to roughly half. The real danger we face is that number will creep up and up and up. The only effective way I think to hold it down, is to hold down the amount of income the government has. The way to do that is to cut taxes.

    -Milton Friedman (economist)

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  31. CDW says:

    This seems to be pretty typical for Hillary. She must have things her way and will not listen to anyone who doesn’t support her view. We have her 1990s healthcare initiative as an example.

    And as someone above said, she’s Decider II. Maybe the my way or the highway attitude has something to do with being second in the dynastic succession.

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  32. jonathan says:

    This kind of issue is interesting because it highlights the difference between the objective and subjective. We know objectively that removing the gas tax in whole or in part for a short time isn’t important. But just as people remembered FDR’s Fireside Chats or JFK’s “Ich bin ein Berliner” – the “I am a doughnut” speech – gestures are important. This gesture could subjectively say, “The government understands that you’re suffering.” One can call that pandering but another might then say that gestures are part of what a government is for.

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  33. Ray G says:

    McCain hasn’t been asked “yet” because the GOP race is pretty boring right now if you haven’t noticed.

    Since Obama is taking the more standard route for the Left – no tax-breaks for any reason – good or bad – Hill gets the questions.

    But Obama should be fielding some questions as well.

    Does he really believe that 3 months without those extra taxes is going to cause our bridges and roadways to crumble?

    Really? He believes that?

    Politicians of all stripes of course major in crises manufacturing, but his is a very weak response.

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  34. John Jay says:

    If a gas tax holiday made sense the dozens of other times it’s been discussed when, say, gas suddenly ‘rose’ to $2, should we not logically not only kill the gas tax but also provide a $1.50/gallon rebate? We can borrow the money, like every other tax-cutting scheme.

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  35. david G says:

    Sorry Rob, #1, but Ia going to offend you. there are in fact enough people who will see the elimination of the gas tax for three months as a wonderful incentive to vote or not vote for someone. Anytime you can promise to put money, no matter how much or how little, into people’s pockets you are winning votes, because the average voter only sees the dollar signs. I have this debate with people all the time, that they are being penny wise and pound foolish when they don’t think about the future and what a tax cut means for the overall health of the economy etc etc. The American voter,on the whole does not seem to look at the big picture and if you think about the social issues that become the focus of elections while the really important issues, war, the economy health care, education, etc. take a back seat, you will see the political expediency of offering people money as a way to get elected.

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  36. Ethan L says:

    Does anyone actually listen to Krugman? He recently commented on Galbraith calling him an intellectual lightweight that “true” economists don’t take seriously. But, does anyone take Krugman seriously? All the tripe he writes advocates instituting Communist style regulation on everything and everyone. How an economist can believe that the inefficiency’s caused by heavy handed regulation can lead to anything but declines in risk taking and inefficient capital allocation is beyond me.

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  37. AaronS says:

    #19 Kebko…

    Here’s another thought….

    This summer, if gas prices remain high, we might rightly expect there to be less travel, less tourism, less motel stays, increased plane fares, etc. All conspiring to hurt the economy from that direction.

    That is, yes, I see the reasoning behind NOT removing the gas-tax. But I would much rather suspend the tax and put money in the pockets of the businesses that depend on travel (to some extent) AND even money in Exxon’s pockets, that just give it to Exxon and the government. If the choice is between Exxon and the Government OR Exxon and the People, give me the people every time.

    Economists are like expert witnesses…you can find support for just about any position you take–maybe even a Nobel prize winner.

    Let’s see, gold standard vs. no gold standard.

    Welfare vs. No Welfare.

    Supply Side vs. Demand Side

    Free Markets vs. Influenced Markets

    And on and on.

    Now, I enjoy the work of “Freakonomics,” and I’m not saying that economics is not without great value. I’m just saying that just as in buying stocks, you can find sound reasoning for just about whatever position you take.

    Would you settle for a Diet Coke?

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  38. Amicus says:

    The short and mid term elasticity of demand for gas is zero.

    A decrease in the tax will not change the amount demanded.

    An increase in the tax will not change the amount demanded.

    The Pigou Club people would have to propose taxes probably well over $2/gallon just to start to get any meaningful cross-price elasticity.

    Of course, their “manifesto” doesn’t bother to include any estimate of what would be required to make their theory operative.

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  39. JW says:

    “Think of it as an economic placebo. Placebos work, and they work better the more expensive they are.”

    Sorry Jim,

    But this a case where the placebo effect could have damaging results. The problem is that gas is so high because we keep buying it no matter how high the price has gone up. Now, the economy of scales is starting to kick in to the point where people have to decide between gas and food, gas and utility bills, etc. This should be the point where people stop using so much gas and start finding other ways (e.g. public transportation, car pooling, etc.). But because of this pointless, pandering exercise McCain and Clinton are trying, people are being offered a false choice immediately versus making the hard choice inevitably. Gas prices will continue to increase w/o the gas tax to match the gas tax anyway. Where is the incentive for the oil companies to play ball with the McCain and Clinton?

    Reducing the tax only gives oil companies more room to increase the cost. Like it not the government will not tell Oil companies to stop increasing the cost of gas. The tax goes away and is replaced with more expensive gas. So where are the savings? Going right to the oil companies. Instead of putting a band aid over a massive wound. We need to get off of our dependence to oil period. Invest in electric cars, improve mass transportation across the country, force the car companies to build more fuel efficient cars now, not 10 years from now.

    But that takes time and a whole lot of overturning the status quo. Politicians are generally about quick hit solutions. And this solution is a bad one no matter how good it seems on the surface.

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  40. Mayor Quimby says:

    If you elect me I’ll make sure everyone gets a free gas can, that way you can buy gas now while it is cheaper and hoard it for later.

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  41. Rick Aster says:

    The placebo effect wouldn’t work in this case because no one would see the prices go down. A small seasonal tax cut wouldn’t make a noticeable difference in the seasonal trends in gasoline prices that make them go up every summer and down every fall. Mike54′s suggestion to increase the gasoline tax makes sense (and I hope he is just joking about the magnitude of the increase). I think the only reason we don’t do that is that Congress really doesn’t want to stick it to the oil companies.

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  42. Lee says:

    They found a supporter of the gas tax holiday! She’s not an economist but the disgraced former HP chairman.

    http://www.latimes.com/news/politics/la-na-campaign12-2008may12,0,4244973.story

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  43. Steve says:

    I am from New Zealand and the AA(equilivent to AAA) is campaigning for no GST (Goods and services Tax which is paid on everything) on petrol because it charges a percentage on existing excercise taxes. I guess similar to the gas tax holiday excercise in the USA.

    I disagree with the AA that excise taxes should be a percentage, they argue that the tax should be a direct link between the number of litres consumed and the costs i.e. a fixed charge to to maintain roads and pay for the carbon footprint of burning that gas etc. Therefore gas taxes should be restructured (rather than a holiday) to be a cents per litre(gallon :p) tax rather than a percentage. My argument is that, inflation makes building roads etc more expensive and thus the govt should take more revenue when prices increase so a percentage tax may make sense. The only time a restructure of petrol tax is needed is when the cost of petrol is extremely out of step with other price changes in the economy. And yes this is the case at the moment, but the increase in fuel costs is flowing through to other goods etc, and it will all balance out in the long run.

    What the AA also forgets is that GST is not placed on petrol to pay for roads or carbon or anything to do with petrol consumption, it is there the same as it is for any other good or service to raise revenue for govt spending in general,

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