Clinton and McCain's Gasoline Tax/Carbon Market Conundrum

Ronald Bailey | April 30, 2008

Both Sen. Hillary Clinton (D-NY) and Sen. John McCain (R-Ariz.) favor a "gasoline tax holiday" this summer. For three months the burden of the 18 cents per gallon federal gas tax would be lifted. That's good politics since motorists now paying more than $60 per fill up would be happy.

But wait. Don't both senators support imposing a cap-and-trade market on carbon emissions to combat man-made global warming? In a Washington Post op/ed last year, two RAND researchers calculated that a relatively modest $30 per ton of carbon carbon dioxide price would boost gasoline prices by 35 cents per gallon (and household electricity bills by 20 to 30 percent).

I'm sure that the public would just love to hear some "straight talk" about that.

See Reason Foundation transportation maven Robert Poole's response to the gas tax holiday proposal here.

Comments

Elemenope|4.30.08 @ 11:27AM|#

But like inflation, those are hidden taxes, and so the secret is safe from the American people.

Michael Ejercito|4.30.08 @ 11:33AM|#

I read that people in Europe pay close to $7 a gallon.

Episiarch|4.30.08 @ 11:34AM|#

Hmm, a reduction of $.18/gallon would save me about $3.60 a week.

Wow, let me run out to campaign for both of them. I'm just going to assume they both think that most people won't crunch the numbers and realize how minuscule this is. Sad thing is, they are probably right.

|4.30.08 @ 11:34AM|#

Paging Al Gore

Episiarch|4.30.08 @ 11:36AM|#

I read that people in Europe pay close to $7 a gallon.

€1.50 - 1.90/liter last time I was in Spain.

|4.30.08 @ 11:38AM|#

Are we still imposing high taxes on imported biofuels?

...because that was really stupid.

|4.30.08 @ 11:42AM|#

According to the BBC the other evening, it's nearly $9.-/gal in Belgium. I didn't see very many Escalades cruising through the background.

Cap and trade would be hard to do; Hillary wants to do a short term shift from an at-the-pump tax to a "windfall profits" tax. Because the money to pay that tax will come from a completely different source.

|4.30.08 @ 11:43AM|#

It's all about garnering votes from the ignorant, self absorbed electorate. From now until November everything that comes out of McCain, Clinton or Obama's mouths will be a targeted pander.

Rhywun|4.30.08 @ 11:44AM|#

I wonder if McCain or Hillary are going to tell city dwellers or other folks who don't drive that they're now going to have to fork over money for highway construction after they give drivers this "break".

Elemenope|4.30.08 @ 11:49AM|#

It's all about garnering votes from the ignorant, self absorbed electorate. From now until November everything much that comes out of McCain, Clinton or Obama's mouths will be a targeted pander.

I know it's hard to remember, it really is, but politicians do occasionally have ideas and principles, too. Not many, to be sure, and they often waver, but they are there.

If they didn't, why the fuck bother voting, paying attention to politics, etc.?

Michael Ejercito|4.30.08 @ 11:52AM|#

According to the BBC the other evening, it's nearly $9.-/gal in Belgium. I didn't see very many Escalades cruising through the background.

Why has there not been a revolt in Belgium over this, either at the ballot box or the cartridge box?

Guy Montag|4.30.08 @ 11:55AM|#

So, those of us who use organic hydrocarbons get a tax rebate and remain free of enviroguilt?

On a somewhat related note, Mr. Chavez has been complaining about ethanol-induced starvation of the Socialist world, but if his numbers are correct, it is a lot cheaper to feed people than what I had suspected:

Talking Bio-trash [Cliff May]


Beware: On the energy front, gushers of disinformation lately have been erupting. One example:

Venezuelan President Hugo Chavez he's concerned that so much U.S.-produced corn could be used to make biofuel, instead of feeding the world's poor. Chavez says the corn needed to fill an average car with ethanol would be enough to feed seven people for a year.

But Robert Zubrin, author of "Energy Victory," notes:

Actually, since a bushel of corn yields 2.8 gallons of ethanol, the corn needed to fill a 20 gallon SUV tank is 7 bushels, which at the current market price of $5/bushel, costs a total of $35. According to Mr. Chavez, then, the cost of feeding one person for a year is $5.

Surely, Chavez wouldn't lie to us to promote his own interests?

|4.30.08 @ 11:58AM|#

Unsure where I saw it (heck, it might have been here at Reason) but since April of 2007 crude oil prices have risen 80% while US gas prices have only risen 33%. Supposedly, one factor that has moderated the rise in gas prices was our reserve capacity, which is running out and should lead to much higher gas prices soonly, if not soonlier.

Taktix®|4.30.08 @ 11:58AM|#

More short-term bandaids to long term problems.

Don't get me wrong, I'm all about fewer taxes, but make those cuts permanent! All a "tax holiday" (which sucks compared to a real holiday) will do is drive the price up during the summer, making gas even more expensive when the "holiday" is over.

In this election, no matter who wins, economics loses.

Big time.

Elemenope|4.30.08 @ 11:59AM|#

Why has there not been a revolt in Belgium over this, either at the ballot box or the cartridge box?

Cause they have these things called buses that everyone seems to ride.

Or they walk.

I suppose it helps if your country is the size of Rhode Island...

|4.30.08 @ 12:02PM|#

I know it's hard to remember, it really is, but politicians do occasionally have ideas and principles, too. Not many, to be sure, and they often waver, but they are there.

OK, I'll grant that they are all for God and the American way. They all want more intervention in the economy and our daily lives. They all have the principle that anything to get elected is justified. I'm being slowly but surely to vote third party again.
Are gas taxes too high, too low, or, as Goldilocks said, just right? LMNOP, as an informed citizen, please tell me what the candidates think.

Guy Montag|4.30.08 @ 12:04PM|#

So, since Ms. Pelosi took over the House of Representatives gasoline prices have skyrocketed, in spite of her plan, announced before the 2006 Congressional elections, to reduce fuel prices by [some version of alot]?

Must be that the President is charging the Congress too much for gas before they give it to the people, or something like that.

Ramsey|4.30.08 @ 12:24PM|#

Maybe it is a crazy idea, but how about highway usage taxes (perhaps even privately leveraged), gas taxes that adequately reflect the real cost of usage including pollution and ensuring global supply, maintaining corporate taxes to reasonable levels, and staying the fuck away from my paycheck with income tax?

Tax consumption to address externalities and leave production alone.

stuartl|4.30.08 @ 12:25PM|#

We know all 3 candidates will talk as if they are totally clueless about economics prior to the election. They will promise to lower gas and food prices while at the same time cleaning up the environment and prevent global warming. We can also expect a chicken in every pot.

Is there any reason to believe any of the three actually do have a clue and might behave semi-reasonably in office? All politicians pander, but some put in place wage and price controls and others just symbolically feel our pain. Since both Obama and Hillary are fair wagers and McCain is a self professed economic illiterate I am not very hopeful.

Guy Montag|4.30.08 @ 12:33PM|#

I am still wondering why it is such a bad thing to get the feds largely out of the highway business and let private concerns run them.

They already contract out most of the maintenance and all of the new construction anyway. Why bother with that inefficient financial round trip?

Rhywun|4.30.08 @ 12:35PM|#

why the fuck bother voting

Indeed.

Elemenope|4.30.08 @ 12:44PM|#

OK, I'll grant that they are all for God and the American way.

HAH!

They all want more intervention in the economy and our daily lives.

Funny, Obama is the only candidate so far to say he wanted *less*. Though it was on FOX news, so you can write that off as playing to the crowd.

They all have the principle that anything to get elected is justified.

No, everyone has lines they will not cross. If the threshold is too low, the candidate loses, that's all.

I'm being slowly but surely [moved?] to vote third party again.

You get rid of first-past-the-post elections, then we'll talk. FWIW, I voted for Badnarik in 2004 as a protest vote.

Are gas taxes too high, too low, or, as Goldilocks said, just right? LMNOP, as an informed citizen, please tell me what the candidates think.

If I were to *guess*, I'd probably say that McCain thinks they are too high, but doesn't know how to pay for the roads and bridges without them. Clinton probably thinks they are too low, but knows that in a car-centered social economy a move to increase them would be counterproductive and politically suicidal, and so has gone all populist-stupid with the "windfall tax" alternative. Obama probably also thinks they are too low and for similar reasons wouldn't say so, but hasn't endorsed any of the windfall takings idiocy yet.

In the final analysis, who knows what tax policies luck in the hearts of men (or women in pant-suits)?

|4.30.08 @ 12:57PM|#

Chavez says the corn needed to fill an average car with ethanol would be enough to feed seven people for a year.

He probably meant fill an average car with ethanol for a year, but if so, he sure didn't say it very clearly, and invited his listeners to conclude that each tank of ethanol would feed seven people for a year.

But maybe he meant, you know, fill the car with ethanol, and not just the gas tank.

Guy Montag|4.30.08 @ 1:02PM|#

RCD,

I can't wait to read the news reports of his ordering all passanger compartments of cars in his country filled with ethanol to combat hunger.

|4.30.08 @ 1:07PM|#

It's one thing to tax an inelastic good such as gasoline for revenue purposes and then to temporarily lift that tax in order to relieve pressure on consumers in times of higher prices. It is an entirely different thing to tax consumption for externality control. If they feel that the price of a gallon of gasoline in terms of supply/demand is artificially low due to the fact that emission standards are under-regulated, then by all means, lets resort to a cap/auction/trade scheme to correct for this price difference. Would you rather have Joe Bureaucrat setting these prices?

|4.30.08 @ 1:16PM|#

" According to the BBC the other evening, it's nearly $9.-/gal in Belgium. I didn't see very many Escalades cruising through the background.

" Why has there not been a revolt in Belgium over this, either at the ballot box or the cartridge box?"

Probably because they are STILL operating with a consumer surplus.

Gilbert Martin|4.30.08 @ 1:19PM|#

As I have said before on another thread, quit funding mass transit boondogles out of highway trust funds and get rid of the Davis-Bacon Act - a political giveaway to labor unions that has inflated the cost of government construction projects for about 70 years.

That will cut down on the cash outflow from the highway trust funds and therefore the gas tax rate (inflow) can be permanently cut as well.

|4.30.08 @ 1:34PM|#

It's one thing to tax an inelastic good such as gasoline for revenue purposes and then to temporarily lift that tax in order to relieve pressure on consumers in times of higher prices.

I'm sure you meant to say "...in order to pretend to relieve pressure on consumers while not actually doing so..."

lets resort to a cap/auction/trade scheme to correct for this price difference. Would you rather have Joe Bureaucrat setting these prices?

Under cap and trade Joe Bureaucrat has to set the cap. The main argument for carbon taxes over carbon markets is that having Mr. Bureaucrat set the tax is somewhat more transparent and less likely to be gamed.

Michael Ejercito|4.30.08 @ 1:41PM|#

Cause they have these things called buses that everyone seems to ride.

I suppose that high gas prices provide an incentive for people to use buses.

|4.30.08 @ 1:44PM|#

"likely to be gamed"?

Cap and Trade worked splendidly for the EU.

I shall now trot out to one of my old propositions: if the greenies had the werewithal (philosophical, as well as financial), they could step into the market and buy up pollution permits (or whatever you want to call them) and retire them, thereby taking care of permits they deem to be "surplus." Instead, they agitate for the government to "do it better."

Guy Montag|4.30.08 @ 1:47PM|#

I suppose that high gas prices provide an incentive for people to use buses.

Also, the homeless could be employed to provide rickshaw service.

|4.30.08 @ 1:47PM|#

"trot out to one"

|4.30.08 @ 1:49PM|#

"likely to be gamed"?

You may have misunderstood what I was saying. To rephrase...

The main argument for carbon taxes over carbon markets is that having Mr. Bureaucrat set the tax under a carbon tax regime is somewhat more transparent and less likely to be gamed than a cap and trade regime.

|4.30.08 @ 1:50PM|#

Bring on the jitneys!

|4.30.08 @ 1:51PM|#

I understood- and my comment about the runaway success of the European program was facetious.

gorgonzola\'s foil|4.30.08 @ 1:52PM|#

Guy Montag @ 11:55,

Would it change your perception to know that the historical Japanese shogunate-period volume measure of rice, generally estimated as enough rice to feed one person for one year and known as a koku (http://en.wikipedia.org/wiki/Koku), is about 7 bushels?

I'm willing to believe that derusked rice is a more energy dense bushel than #2 corn on the cob. However, I am also willing to accept that the amount of corn required to fill one SUV tank with ethanol could actually feed a mid-19th century subsistence farmer for a year. I don't know if I'd buy seven people, but I'm on board for one.

|4.30.08 @ 2:01PM|#

As I gathered.

|4.30.08 @ 2:49PM|#

In the final analysis, who knows what tax policies luck in the hearts of men (or women in pant-suits)?

Always a problem isn't it? Campaign on issues with actual proposals and go down in defeat.

You filled in the missing word well. I actually intended to write "driven" but my brain is faster than my fingers. That doesn't imply a quick mind, but does indicate crappy manual dexterity.

|4.30.08 @ 2:53PM|#

I agree with the fact that a pure consumption tax would provide the optimal level of emissions, but only based on the price of the tax. There are two variables here that will, in the end, determine the amount of allowable emissions; the price of emitting, and the "cap" on emitting. These are pretty much two sides of the same coin, but I think that we all agree that it would pretty much be impossible to regulate both and there is no obvious solution for full market control of both (that is IF we really want to limit emissions). Now, if we tax consumption straight up, we run the risk of the tax being too low and not limiting the emissions in any measurable way, but rather pouring unnecessary dollars into the hands of government. Another risk we run is a tax that is too high and causes an unnecessarily negative effect on industry. Let's not kid ourselves into thinking that it is very likely that the government would tax just right. With this in mind, let's look at the cap/Auction/trade scenario. The only variable the government would control would be the raw amount of emissions allowable. This could fluctuate given the demands of the market much easier in that they could always auction more or less at any given time, which is much more efficient than raising and lowering (snicker!) taxes based on environmental demands. The other key part of this plan is the fact that the permits would be auctioned, thereby producing an absolutely optimal tax!

concerned observer|4.30.08 @ 3:45PM|#

im sick and tired of politicians pretending to care what happens to the people and insead simply creating givaways to oil companies. we ought to keep the tax on gasoline and put the money towards building a mass transit system for the nation rather than spending it on roads that people will use to drive cars and pollute and destroy the earth.

DannyK|4.30.08 @ 6:23PM|#

Every reputable economist I've read on the subject, liberal and conservative, says that, without new supplies of gasoline, dropping the gas tax will just stimulate demand, raising the price back up to a similar level.

Obama's recognition of this and refusal to pander greatly increases my respect for him. The US desperately needs a president who actually believes in the free market and doesn't try to diddle it with tiny interventions that only cause market distortions.

|4.30.08 @ 6:31PM|#

Any tax is a barrier to trade and therefore anti-freemarket.