Posted on 05/02/2006 6:54:25 PM PDT by NormsRevenge
WASHINGTON – Cutting gasoline taxes is not a good way for the country to deal with soaring energy prices, President Bush's top economist said Tuesday.
“One of the things we worry about when we cut the tax on gasoline is that it basically stimulates additional use,” said Edward Lazear, chairman of the White House's Council of Economic Advisers.
“Over a longer period of time, it would be a significant problem ... because what it would do is it would encourage us to use more oil, not less and that is the way we got to the situation right now,” he explained. “That probably is one of the policies that we would like to avoid,” he said. Lazear's comments come as lawmakers on Capitol Hill grapple with ways to provide Americans with relief from rising energy prices.
Oil prices hit a record high of over $75 a barrel in late April; they are now hovering above $74 a barrel. Gasoline prices, meanwhile, are topping $3 a gallon in some areas.
Democrats have promoted the idea of a “tax holiday” by suspending the 18.4-cent-a-gallon federal gasoline tax for 60 days.
Lazear also raised questions about another idea that has been advocated by Republicans: providing a $100 gasoline rebate to millions of motorists.
“The administration is studying that proposal. It doesn't have the same kind of direct adverse consequence that we just talked about” in terms of a cut in the gasoline tax, he said.
“But there are other issues that we have to think about – is that the best way to be using our tax revenues? Is it the most efficient way to allocate our resources? And so there are a number of issues that are under study on that,” Lazear said of the gasoline rebate.
Lazear made his remarks during a wide-ranging question-and-answer session following a speech that explored, among other things, the gap between the wages of skilled and unskilled workers in the United States.
That wage gap has been visible for decades and “shows no obvious signs of abating in the near future,” he said. Improving the education and skills of workers is one important way to help the situation, he said.
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On the Net: CEA: www.whitehouse.gov/cea/
Drill ANWR
Ah, but if we don't spend the money on government corruption, then we have more money to spend on alternative solutions.
A tax cut moves spending from Friedman Category 4 (spend C spends A's money on B) to Friedman Category 1 (A spends A's money on A).
That would be a great increase in efficiency!
Increasing ethanol supply would at least prevent the cost burden brought on by this MTBE-to-ethanol change. Plus, it could result in some cooperation with Brazil that could lead to some good ethanol technology exchanges.
The purpose of ethanol is less to clean the air, and more to increase the price of corn.
But you knew that.
article also on the net titled
Bush Economist: Gas Tax Cut Not the Answer
Personally, I think that most of any gas tax cut would go into the pockets of the oil companies. It's not going to reduce demand, so why would it reduce the price unless it increases supply? And why would it increase supply, given the tight market conditions we've already got? It would have no short term affect on supply, and in the long run, the higher margins oil companies are already earning would be enough to motivate production anyway.
If we are going to have a tax cut, it should be an income tax cut.
Wrong. Any tax cut is good conservative policy. Same goes for spending reform on welfare entitlement programs. Good conservative policy.
If you cut the gas tax, and the price doesn't fall, that is not good conservative policy, and it's not good politics. In fact, it's a conservative nightmare that the Dems will rant about for months. If you cut the income tax, then you don't worry about whether it filtered down to the consumer in the form of a price cut at the pump.
You're wrong. Taxes are way too high. Everything is taxed. Everything. Most things are taxed two and three times. Reducing taxes is a basic tenet of conservatism. That includes all taxes. Its called fiscal responsibility. The gas tax is a regressive tax effecting low and middle income folks most significantly. Repealing the gas tax for 4-6 months is good politics. Cutting the gas tax permanently is sound conservative policy. Cutting federal income tax rates is also sound conservative policy. The federal governemnt should be satisfied with a 35% maximum federal income tax rate and a $2.8 trillion annual budget. $450 billion in deficits and a $9 trillion debt ceiling is more then enough irresponsible governance. The Feds don't need the 18-cents of federal gas tax.
Ed Lazear is an excellent economist.
So as he surely knows, the proposed cuts in (or elimination of) retail taxes on gasoline aren't likely to reduce the price paid by the consumer, except maybe for a brief initial period.
That's because the "equilibrium" price is going to be determined by SUPPLY AND DEMAND.
So unless somebody can show me that cutting the retail tax will increase the supply of gasoline, I must conclude that the final price paid by the consumer will remain pretty much the same.
What WILL change with a tax cut is likely to be the short-run distribution of "profits" (or "rents" -- to use proper economic terminology).
Assuming that refiners are now producing at maximum capacity and that after a tax cut they don't raise the price they charge to retailers, and further assuming that government in its wisdom doesn't impose price controls, then a cut in retail taxes will mostly shift "rents" away from the government(s) and toward the retail merchants. That is, the retail price will remain basically the same and retailers will reap a windfall approximately equal to the government's lost tax revenue.
Complications:
(1) If local, state and/or federal authorities apply retail price controls, so as to force prices down to the former level MINUS the foregone taxes, then shortages and gas lines will appear. This outcome is 100% certain.
(2) Prices may begin to fall a bit after a while, to the extent that retailers and their distributors use some of their new rents/profits to bid petroleum away from foreign users -- since such an action will in fact increase our domestic supplies.
(3) Increased revenues in the hands of retailers may gradually "trickle down" to producers, in the form of higher prices that retailers may be willing to pay for fuel from high cost sources, like the Athabascan tar sands of Canada or capped "stripper" wells in the USA. But this effect is likely to take several years before it produces a noticeable increase in supply.
Bottom line: Taxes and tax cuts affect mainly the distribution of revenues between government and the private sector. Prices at retail are determined by supply and demand.
Now repeat after me: SUPPLY AND DEMAND.
Well, we may get to see who's right, you or me.
I return to my original statement. Cutting taxes is good conservative policy. I don't see how that can be wrong.
And NPRA and OCS and Bristol Bay and California coastline and Florida coastline and....
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