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.]


Ethan L

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.

david G

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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John Jay

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.

Ray G

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.

mike

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?

sirhcton

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?

jonathan

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.

eddy

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)

Ray G

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.

CDW

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.

Josh

@ 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.

Ari Indik

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).

kebko

AaronS: You owe me a coke.

mmm

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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AJ

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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Rich Wilson

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.

AaronS

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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Helen

@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.

Matoli

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."

Jim

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.