During the 1992 Democratic presidential primaries, former Massachusetts Sen. Paul Tsongas denounced rival Gov. Bill Clinton (D-Ark.) as a "pander bear" who "will say anything, do anything to get votes." Sen. Hillary Clinton (D-N.Y.) is clearly following in her husband's electoral footsteps by proposing a "gas tax holiday" for the summer driving season. When primary votes are at stake, who needs to heed the laws of economics or even good sense?
Clinton's idea, which is also endorsed by Republican presidential hopeful Sen. John McCain (R-Ariz.), is to suspend the 18.4 cents per gallon federal gas tax for three months in order to give cash-strapped motorists relief at the pump. Assuming that dropping the tax would actually lower the price per gallon by the full 18.4 cents, how much would this actually save the average family?
Let's make a rough calculation, using an average commute of 20 miles per day in an automobile with a 15 gallon tank getting the corporate average fuel economy (CAFE) mileage of 27.5. A commuter would then fill up every 20 days. There are 98 days between Memorial Day and Labor Day, so that means five fill-ups over the summer. Five 15 gallon fill-ups at 18.4 cents per gallon less would mean that motorists would save a total of $13.80 for the summer. Let's double that for vacation driving and shopping and that comes to a grand total of $27.60 in savings. About enough to buy five Big Mac Combos.
But would prices actually go down by 18.4 cents? Not likely. As the Tax Foundation reports, most economists assume "that a temporary gas tax holiday would merely increase the profits of the oil industry due to the inability of domestic supply to respond to increased demand in the short run."
In addition, if the federal gas tax is dropped for the summer, the highway trust fund that pays for the upkeep of our crumbling roads and bridges will be short $10 billion. Not to worry, says Sen. Clinton: We'll make up for that fiscal shortfall by taxing the excess profits of Big Oil.
Clinton clearly hopes that primary voters will want to stick it to the greedy oil companies. After all, Exxon Mobil just announced $10.9 billion in profits for the final quarter of 2007. So Sen. Clinton says she'll take away some of those profits to pay for her gas tax holiday. And Clinton's not alone. Her Democratic rival, Sen. Barack Obama (D-Ill.) is also calling for a windfall profits tax on oil companies. But will it work?
The last time the United States imposed a windfall profits tax on oil companies was in 1980 and it lasted until 1988. The result, according to a 1990 Congressional Research Service analysis, was that the tax on oil company profits decreased domestic production by 3 percent to 6 percent and increased dependence on foreign oil by 8 percent to 16 percent. Keep in mind that the big private oil companies actually control only about 6 percent of the world's known oil reserves—the rest are owned by gigantic foreign national oil companies. And just where do private oil companies get the billions they invest in projects to increase supplies? That's right; their profits. In other words, Clinton actually ends up sticking it to consumers when she tries to stick it to Big Oil.
Sen. Clinton may be feeling the pain of motorists right now, but once she's in the White House, she plans to inflict more pain at the pump. In fact, all three presidential hopefuls plan to do this. Why? Because Clinton champions "the most aggressive approach to reducing global warming out there." She wants to cut the emissions of greenhouse gases that warm the planet by 80 percent by 2050. To do this she favors a cap-and-trade market on carbon dioxide emissions. The Progressive Policy Institute has calculated that a relatively modest $15 per ton price for carbon dioxide emissions would boost the price of gasoline by 15 cents per gallon. But Sen. Clinton is counting on voters failing to connect the dots between gasoline prices and her global warming policies.
This past weekend, on ABC News' Sunday talk show, "This Week," Sen. Clinton was asked by host (and former Bill Clinton aide) George Stephanopoulos, "Can you name one economist, a credible economist who supports the suspension?" Sen. Clinton replied, "I'm not going to put my lot in with economists." For their part, economists are certainly not putting their lot in with Clinton. According to Bloomberg News, 200 prominent economists, including four Nobelists, have signed a petition denouncing Clinton's gas tax holiday as a "bad idea." Even the New York Times' Clinton votary economist Paul Krugman grumbled that her ploy is "pointless, and disappointing."
We will find out soon if Democratic Party primary voters are really stupid enough buy into this cynical Clinton pander.
Ronald Bailey is reason's science correspondent. His book Liberation Biology: The Scientific and Moral Case for the Biotech Revolution is now available from Prometheus Books.