TAG | tax
Sorry to harp on the gas tax holiday so much, lately, but this is hilarious:
Bloomberg.com reports that while economists have overwhelmingly ridiculed the idea of suspending the gas tax over the summer, Hillary Clinton has continued to stick to her guns. Clinton, after hearing that the economists thought the idea was ridiculous, stated:
I’m not going to put my lot in with economists
Ya know, it’s perfectly fine to say that you’re not going to listen to a consensus of football players giving you advice on filling out your taxes. Or a large group of lawyers giving you advice on how to paint your house. But generally, if you’re untrained in a subject, and practically an entire professional field gives you advice on the subject they specialize in, you should probably listen. And if you’re not going to listen, you’d better have a darned good explanation beyond “I know where you’re coming from, small folk,” for why you’re deviating from trained professionals. So Hillary (and Mr. McCain): if it makes sense to suspend gas taxes, please come forward and explain why rather than giving the same old pandering political speeches about how you’re trying to help “the little guy.” Call me an elitist, but I would rather that economic decisions follow the advice of trained professionals than “the little guy,” who hasn’t learned a thing about economics in his entire life.
But this isn’t even about elitists versus “the common folk.” This is about whether we want to help the country or hurt it. If I had a choice between having a mechanic fix my car or a random neighbor, why the heck would I pick the neighbor? And if I have a choice between having Hillary Clinton or John McCain making economic policy based on hunches or someone who is going to defer to a trained professional, I’m surely going to pick the person who defers to the trained professional.
This proposal to suspend the gas tax sickens me. This is why I hate politics so much.
Please note that this is not an endorsement of Barack Obama. He’s got plenty of problems, too, the gas tax is just an area where he pseudo-shines.
Update 5/6/2008: Greg Mankiw writes:
Why, then, are candidates proposing the holiday? I can think of three hypotheses:
Ignorance: They don’t know that the consensus of experts is opposed.
Hubris: They know the experts are opposed, but they think they know better.
Mendacity with a dash of condescension: They know the experts are opposed, and they secretly agree, but they think they can win some votes by pulling the wool over the eyes of an ill-informed electorate.
So which of these three hypotheses is right? I don’t know, but whichever it is, it says a lot about the character of the candidates.
Update 5/7/2008: From The Wall Street Journal
John McCain and Hillary Clinton want to send cash-strapped consumers on holidays from the federal gasoline tax. But the law they can’t rewrite — the law of supply and demand — suggests it would backfire. Lower taxes would encourage people to drive more, meaning more demand that would push prices higher again.
I have no idea who I am voting for in this upcoming Presidential election, but I’m certainly looking more favorably upon Barack Obama after reading his reactions to John McCain and Hillary Clinton’s populist attack against gas taxes. From the New York Times:
Senator Hillary Rodham Clinton lined up with Senator John McCain, the presumptive Republican nominee for president, in endorsing a plan to suspend the federal excise tax on gasoline, 18.4 cents a gallon, for the summer travel season. But Senator Barack Obama, Mrs. Clinton’s Democratic rival, spoke out firmly against the proposal, saying it would save consumers little and do nothing to curtail oil consumption and imports.
I wholeheartedly agree. And so does one of today’s brightest economists, Greg Mankiw:
I don’t know any prominent economist who favors this McCain-Clinton proposal.
First, we have to realize that the increased gas prices are, although inconvenient in the short run, somewhat of a blessing. People are quickly starting shift away from driving larger cars, which will lower gasoline consumption in the long run. Additionally, if gas prices remain high for a long period of time, economic theory tells us that people will start taking larger actions to lower their gas prices, such as telecommuting or living closer to where they work. Additionally, this shifts more demand toward alternatives to gasoline-powered vehicles, such as electric cars, that don’t pollute and are by nature more efficient per mile than gasoline cars.
But all in all, we shouldn’t be thinking about suspending gasoline taxes, we should be thinking about increasing them. Although gas prices are high, the consumption of gasoline creates large externalities, which is a market failure that should be corrected through taxation. Additionally, by taxing gasoline at a higher rate, we could offset the income tax and payroll taxes. So overall, we could stop taxing people from doing a positive activity (working) and start taxing an activity that creates a negative externality instead.
(hat tip on this post: Greg Mankiw’s Blog)
One of my former professors sounds off on the new economic stimulus package:
Such stimulus, however, is futile. Government cannot create genuine spending power; the most it can do is to transfer it from Smith to Jones. If the Treasury sends a stimulus check to Jones, the money comes from taxes, from borrowing, or is newly created.
If it comes from taxes, the value of Jones’s stimulus check is offset by the greater taxes paid by Smith, who will then have fewer dollars to spend or invest. If Uncle Sam borrows to pay for the stimulus checks, this borrowing takes money out of the private sector. Any dollars borrowed – whether from foreigners or fellow Americans – for purposes of stimulus would have been spent or invested in other ways were they not loaned to the government.
It makes sense. If $300 appears in the hands of every person in the United States, it’s not as if we now have more purchasing power as a whole. The total stock of dollars in circulation can always buy the same amount of goods, no matter how many dollars are in circulation…