Sunday, May 4, 2008

Gas Tax Lunacy

Hillary Clinton has been aggressively pushing a gas tax holiday in the days leading up to Tuesday's primaries in Indiana and North Carolina. Currently, the government collects an 18.4 cent tax on every gallon of gasoline and uses the funds to pay for building and maintaining roads. Senator Clinton would counter the lost income from the gas tax by imposing a "windfall profits" tax on oil companies. Ignoring that she already had pledged to spend proceeds from such a tax to fund green energy research and the like, and the fact that removing the tax will of course result in more foreign oil being purchased and burned, let's do a little thought experiment to figure out the effects of such a plan:

The market has established that people are willing to pay $3.60 for a gallon of gas. Now you would expect that, after lifting the 18 cent tax, the price might go down to $3.42, the net effect of which would be savings of $25-$70 per family, depending on whose math you believe. And of course, the decreased cost would be passed on to the consumers, right? The oil companies would take no action to offset the losses to their "windfall profits". It's not like the oil companies have a long record of keeping prices high to ensure they all profit, do they?

Here's a list of profits for various oil companies in the 1st quarter of 2008:

ExxonMobil: $10.89 billion
Shell: $9.08 billion
BP: $7.6 billion
Chevron: $5.17 billion
ConocoPhillips: $4.14 billion

Clearly, any short-term action to take money out of the oil companies' pockets is a futile gesture. With nothing to stop them from increasing prices to offset the windfall tax, Hillary's plan is a political pander designed to buy votes.

Also of note, in a press release dated 4/29/2008, Senator Clinton proposes, as she also did on Bill O'Reilly's show last week, that we use WTO to force OPEC to increase production and therefore lower prices. Unfortunately, oil is largely exempt from WTO jurisdiction

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