We need to be freed from gas, not the gas tax
John McCain’s proposal to institute a gas tax “holiday” during the summer driving season is as clear an example of a pander as one is likely to see during election season, but its inclusion in a major economic policy speech suggests that this is no easily ignorable one-off. As Joseph Romm notes, any hope progressives might have had that the maverick, straight-talking conservative could bring some principle to the table on climate and energy issues has now gone out the window.
How badly does the tax holiday plan fail? Let us count the ways.
First, it will offer consumers little help at the pump. In just the past year, gasoline prices have risen about 25 percent on average, dwarfing the 18.4 cent federal tax. Given recent oil price movements, it’s not impossible (and perhaps likely) that fuel costs will have jumped by the full amount of the tax between now and Memorial Day. There’s simply not enough tax to remove to make fuel costs less painful for consumers.
Second, given the fact that the average consumer would scarcely notice the price difference from a suspended tax, the budget cost is unacceptable. America’s transportation trust fund is low enough as it is. Cutting out a key source of revenue for a period of several months is a highly irresponsible decision.
And third, this demonstrates a total lack of seriousness about climate issues on McCain’s part (though it’s unlikely his “green conservative” reputation will suffer for it). It should be clear that any effective policy to reduce carbon emissions will increase the price of fossil fuels. This is unavoidable — indeed, it’s precisely the point of those measures. McCain is clearly willing to compromise on climate issues when political advantage is available, and we have every reason to believe he’ll do so in office.
Having said all that, it’s not surprising that McCain opted to make gas tax suspension a key part of his economics speech. Neither is he alone in using high gas prices as a political weapon. Both Democratic candidates have pointed to soaring gas costs as evidence of President Bush’s shoddy leadership, despite the fact that there’s very little he could have done to forestall the increase. Our military adventures in the Middle East undoubtedly have contributed to rising oil prices, but the primary forces behind the increase are supply and demand. Global economic growth has been strong, especially in Asia, leading to increased oil consumption. Meanwhile, oil production has slowed considerably. Wars or no wars, gas would be expensive.
Democratic attacks on this score suggest that there’s something they could do about high prices, but there isn’t, and even if there were, they shouldn’t, for the climate reasons mentioned above. They too are abusing American frustration with high gas costs for political reasons. By doing so, they miss a key opportunity to point out the real failures of the Bush administration and our real economic weakness where gasoline is concerned.
The era of cheap gas is over. Our leaders have failed because they haven’t given consumers a way to avoid buying gas. That is the problem; that’s what we should be talking about.
High prices are only painful if there are no substitutes available. When a frost destroys part of Florida’s citrus crop, orange juice prices soar. There is no crisis for consumers, however, because they can simply walk down the grocery aisle a bit and purchase apple juice, or milk, or water. But if orange juice were all we had to drink, a citrus crop disaster would be a catastrophe. Americans would be forced to cut spending elsewhere to buy expensive orange juice. We’d send billions of dollars to overseas orange juice producers. Any other products that relied on orange juice as an input would also be harmed — the mimosa and screwdriver industries would be devastated, for instance — and so on.
That is where we find ourselves with respect to gasoline. The few lucky metropolitan areas with transit systems have enjoyed record ridership as drivers gladly substitute away from gasoline. Elsewhere, there are no such options. Families trim spending to buy gas. They become less mobile to conserve fuel. If they can afford it, they purchase a hybrid (even though that also requires trips to the local gas station). And every product that has gasoline somewhere in its production process grows more expensive.
We are, as a nation, incredibly vulnerable to increases in gasoline prices, because, as a nation, we have done so little to diversify our transportation network. We placed all our bets on roads, cars, and gas. Sadly, those were losing bets, and we did practically nothing to hedge.
Oil prices will fluctuate in the future, but the long-term trend is likely to be up, and up, and up. If we hope to minimize the pain of future fuel price hikes, now is the time to invest in automobile alternatives. We can do this by shifting funds from new highway construction to new transit construction. We can do this through congestion pricing. And we can do this by keeping and increasing our pitifully low gasoline tax. Better to suck it up and pay those few extra cents now in order to enjoy a range of options tomorrow.