Wednesday, April 30, 2008

It's A Gas, Gas, Gas

Baby pictures coming soon. I promise. I just have to download them first.

A little while ago David Ignatius asked whether the presidential candidates could be honest about the issues for a change. Mike answered no. I think I have Exhibit A that Mike's right.

I just read about this idea Clinton and McCain have about suspending the federal gas tax for the summer. Apparently they think this is a good idea. Let's take a look at the facts here...

1) We have a huge federal budget deficit.

2) Increasing demand, especially from China and India but also here at home, is driving the price of gas up.

3) Lower tax revenues make the budget deficit worse.

4) Higher gas prices will encourage people to conserve, thus limiting demand and slowing the rise of gas prices.

5) There's a little bit of a budget deficit in Washington right now.

6) The federal gas tax is 18.4 cents - about 6% of the cost of a tank of gas. Not much for the consumer, but a lot for the feds once you add it all together.


Well, that settles it. Seems like what we ought to be doing is trying to control our demand for gasoline, which should put a natural downward pressure on prices (not to mention help out with that whole global warming thing). Ah, but there are two little facts I forgot to consider...

1) It's an election year.

2) People vote for politicians when they pander, no matter how dumb the pandering policy.

And there you have it. Empty electoral politics > sensible solutions to one of our most important issues. Kudos to Sen. Obama for not signing on to this nonsense. Given that Obama and Clinton are, like, exactly the same on every other issue, I think I just made up my mind about who I'm voting for on May 6.

Here's what I think should be done:

1) Raise fuel efficiency standards for cars and trucks. This has been done, but needs to be done more. Ignore Detroit's whining - it's clearly possible.

2) Raise the gas tax substantially. (Note: this might need to come with an increase in the EITC, since this will probably hit rural poor people hard. Either way, the amount of revenue coming in from the gas tax hike should be higher than the amount of revenue paid out by the new EITC. That will leave funds for us to...)

3) Invest the revenue from that into programs that encourage conservation, such as mass transit. Help out with the research on more fuel-efficient cars if need be.

4) On the local level, encourage development that places residential and commercial sites near one another and near job centers. There are a number of ways to do this - zoning laws, help with the funding, impact fees for far-flung development, etc.

This should decrease demand somewhat, creating a moderating pressure on gas prices. Note that I don't support biofuel subsidies. The main reason for this is that biofuel subsidies are part of what's driving the global food price crisis, and any energy policy that creates famine in other countries is no kind of policy at all. (In fact, Obama supports continued ethanol subsidies while, as far as I can tell, Clinton and McCain don't... maybe I don't know who I'm voting for next week after all.) Biofuels also spend about as much energy to make as they would save. The sugar-based stuff from Brazil might be a solution, but I think that still might cause the food-price explosion. We should fund research on getting fuels from waste products (we have plenty of that lying around), but subsidizing production just seems like a bad idea to me.

But good luck finding a politician who will say that stuff, especially #2.

A final note to the American people: you have to pay for your programs. If you want lower taxes, you can't have that shiny new road. If you want that shiny new road, you have to raise taxes. It's amazing how many people don't understand this.

UPDATE: Tom Friedman agrees, although he states his case a little bit more intelligently (and just as angrily... I love it when op-ed columnists get pissed). One tidbit I didn't know: Congress is having trouble renewing the solar/wind production tax credits that are set to expire at the end of December. This despite the fact that oil producers got their tax credits. I think these will still get through (whether or not production tax credits are a good thing is another debate), it being an election year and all, but seriously... credits for oil/gas and not for renewables? If we're giving out tax credits, I think most of us would agree that those credits should go to the solar/wind/geothermal/tidal/whatever people rather than the fossils. So how did the more controversial credit get through while the least controversial credit languishes in committee somewhere?


Andy said...

Where to start? Hmmm, let's go with:

Obama 2000, "I was wondering, can I - in my district, can I have [a sign saying] 'Senator Obama reduced your gasoline prices'? Is that possible?"

Obama 2008, "We’re arguing over a ... half a tank of gas over the course of the entire summer so that everyone in Washington can pat themselves on the back and say they did something."

To back-pat or not to back-pat, that is the question.

Jeff said...

Wait, wasn't gas cheaper than water in 2000? Who the hell was concerned with gas prices then?

Just to clarify for those who would wonder what the hell you're talking about: then-State Sen. Obama voted for a temporary repeal of Illinois' gas tax in the summer of 2000. It apparently didn't do much and, when legislation was proposed to repeal the tax completely, Obama voted no and let the holiday expire.

There's enough of a gap there for me to believe that he appears to have learned his lesson. I'd like to see Obama directly reference his experience with this policy as proof that the Clinton/McCain solution won't work... "trust me, I've been down this road before," that sort of thing.

Andy said...

Secondly, you're blowing a few things WAY out of proportion. But then again, you are a Democrat and we're talking money.

Current estimation of suspending the gas tax for the summer would be a loss of approximately $10 billion in revenue. Alot? Not even close. For some reason, you keep comparing it to our deficit which is entirely backwards. But even doing it your way, $10 bil constitutes less than five percent of our deficit -- bigger factors are trades and wars. Instead, it would seem more prudent to compare the loss of $10 bil in revenue to all other forms of revenue. In 2006, our federal government took in around $2.4 tril in revenue so the loss of summer gas tax is less than half a percent -- or in more practical terms, if you make $30,000/year sacrificing $100 bucks. Would you get by? Sure. And more important than that, if halting the collection of that $100 means the person in debt to you can put food on their table for a few months, is it worth it? To use Ben's own argument, it depends on what you feel the role of government is.

Andy said...

Thirdly, (is that even a word?) your fixes are like band aids on a hemorrhaging dam.
1) Raise fuel efficiency standards -- see many poor people driving Priuses?

2) Raise taxes -- how you let this one slip to #2 is beyond me.

3) Reinvesting in mass transit -- wouldn't running a rail out of the city go against #4, putting residential near the jobs?

4) Government designing places to live -- wow. Will they feng-shui my house next?

How about some real fixes? Biofuels from non-food stuffs like grass. More nuclear power. Allow drilling offshore, in Alaska and the northern plains. Modernize our oil refineries. Standardize fuel mixtures to relieve burden on refineries. Move to natural gas while waiting for solar and wind to get up. Those are for starters.

Jeff said...

Small as it may be, I still don't see how we can justify adding to the deficit for something that won't save people any significant amount of money. The only thing we're buying with that borrowed $10 bil is votes.

1) No, but I see a lot of poor people driving Corollas (Danielle's gets 30 MPG). And I see a lot of people who could afford hybrid SUVs getting the regular kind. Also: fuel efficiency standards would increase production of hybrids, thus driving down their cost.

2) Damn libertarian.

3) Well, the people are already there. We can't just make them pick up and move back into the city. Might as well make it so they can get into the city without using much gas. Besides, development near rail lines is almost as good as development in the urban core when it comes to conservation.

4) Damn libertarian.

5) Those fixes are good, but I'm not really concerned with fixing oil for power in this column. By all rights, that's gotta be the easy part - nuclear, solar, wind, gas all can help. Cars account for over half of our oil consumption, and there's not really a viable alternative to oil-based fuels right now. Cellulosic ethanol is still a ways off - you ought to know that. So in the short-term, conservation is the best policy, and government actions that encourage conservation are the best solution for now.

There is another option - benign neglect. All those solutions I proposed aside, I'm not convinced that allowing gas prices to continue to rise is such a bad thing. At some point the market's gotta kick in and encourage people to consume less, right?

Matthew B. Novak said...

Given the high elasticity of demand for gas, it's hard to believe consumption will be greatly reduced regardless of price.

The honest reason for our high gas prices is the fact that our energy companies are gouging us, and lying to us about it. We need to target the real problem, and a tax holiday is not the way to do it.

Mike said...

I don't really have anything to add (since Jeff got to the point I was going to make with his final paragraph). I did want to mention I've got this amusing image in my head of Jeff and Andy (well, Jeff and an image of some guy to whom I have assigned the name "Andy") sitting at opposite sides of their office, and instead of discussing the issue, typing their responses and then yelling across the room, "Okay, my response is done, your turn!" Please tell me that's accurate, because that would be awesome.

lsmsrbls said...

Ugh, the worst part is hearing Clinton making swipes at Obama because he's not calling for a gas tax holiday. "I'm doing something stupid, so you should, too. Why do you hate poor people?"

Andy said...

Mike, not even close. We sit right beside each other and our conversations usually start when one of us turns to the other and says, 'Did you see what [insert some dumb ass] did?' And then we talk for the next 90 minutes instead of working. We're like Hannity and Colmes, only prettier.

Today's great conversation was made possible by the fact that two days a week I stay at home with my kid rather than send him to daycare, which may actually be the root of all evil.

As for your image of me, would you like an autographed 8x5 per chance?

Andy said...

By "final paragraph", I assumed Mike didn't mean the update.

Jeff writes:"If you want that shiny new road, you have to raise taxes. It's amazing how many people don't understand this."

Oh, I understand this but I don't have to agree. Consider if you live in San Diego and never leave the city, should you have to pay a tax to help build a road in Northern CA? Wouldn't a form of direct tax be more appropriate? Since it's a road, why not tax the actual users/destroyers of that said road by putting in toll booths? If you want to use the road, pay for it everyday before you get on it, don't punish the guy who'll never use it by taking his money.

Jeff said...

Andy: Toll roads and congestion pricing (like a tax on all the suburbanites who drive into the city - they do it in London rather effectively) aren't a bad alternative to blanket taxation. You could achieve some increase in conservation without taxation if you put HOV restrictions on entire roads (like I-66 through Arlington). My point is more that if you want government to do something, you have to raise the revenue somehow. You suggest toll booths, which are just a sales tax on road usage. Whatever - you're still raising taxes, you're just doing it differently.

Matthew B. Novak said...

And the point goes to Jeff.

Andy said...

Jeff: "Whatever - you're still raising taxes, you're just doing it differently."

I'd hazard a guess that when a Democrat says "raise taxes", the average Joe on the street doesn't think, 'Oh, they must mean road tolls'. Instead, that phrase means an increase in federal income taxes, gas taxes, inheritance tax and so on. I'd also hazard a guess that you didn't mean 'road tolls' either. And technically, road tolls wouldn't be considered 'sales tax', a consumption fee added to the purchase of one unit of goods or services. It would be considered a 'fee'.

Secondly, you know, there's always an alternative to 'raising taxes'. Try not paying for something stupid for once, you might like it. You could start with HRC and Obama's earmarks -- those could practically fund I-95 upkeep for years.

Ben said...

Like Mike, I have nothing to add to what is thankfully turning out to be a substantive policy discussion with minimal eye-poking and "nyuck, nyuck, nyuck." (Or is it "nyuk, nyuk, nyuk"?)

But I am commenting here because folks seem to be talking on Jeff's blog a lot. My message is: Mike, Jeff....either of you planning on attending the 5-year Class Reunion at Vanderbilt this October?

Andy said...

Sorry, got ahead of myself. I was trying to say: "[T]echnically, road tolls wouldn't be considered 'sales tax', a consumption tax added to the purchase of one unit of goods or services. It would be considered a 'fee' (the price one pays for the good or service)."

Anyway, this is beside the point of the article, which was The Summer Gas Tax Holiday.

Andy said...

How appropriate to our topic here.

Earmark + road = Investigation goodness.

Mike said...

By final paragraph I meant final paragraph of Jeff's last comment before mine: the "do nothing" approach. I think gas prices will resolve themselves of their own accord.

Andy, the image of you and Jeff I had was based on old mental images I had of Jeff and Ben IMing each other from across the room. So, really, in my mind, you look like Ben.

I don't mind the premise of paying for public roads via tolls, provided there is a time- and cost-effective method of gathering tolls. The only ones I can come up with are too Big Brother-ish for my liking.

"You're still raising taxes - you're just doing it differently."

Precisely, but to me that difference is huge. It places the decision on which roads to pay for directly in the hands of people, and seems to along with my usual "let me decide how the taxes I spend are paid" argument.

-Dave said...

Way late in the debate, but...

I don't think you need to raise fuel efficiency standards. Your hike in the gas tax would accomplish the same goal, but without the need to play nanny to automakers.

Recent numbers show dramatically how rising gas prices affect the choices made by consumers. Purchases of new cars are up, but purchases of light trucks are way down.

But I think it's consumers who should be allowed to balance the high-efficiency/high-cost vs. low-efficiency/low-cost car choice (extra efficency, after all, comes at a price - a combination of reduced performance and extra technology). I think the result of a draconian fuel-efficiency mandate would be to make cars significantly less affordable. You may consider this a good thing, but why not simply be more direct and put a tax on car purchases comparable to the demand-reducing hike on gas taxes?

I'm not so keen on using gas tax money to invest in renewable energy (cf. ethanol mandates). The government does a lousy job of picking technological winners in advance, as does pretty much everyone else, so what we need is a competition among technologies to let the best alternative emerge. Incentives like "The X Prize" are the way to go if the government wants to be involved - set a goal, provide a reward for the people that meet that goal, and let them compete to try and earn it. Problem is, this doesn't provide an immediate "Look What I Funded" story for the politician to take to the electorate, so we get the "I got $10 million in funging for switchgrass ethanol" story instead.