A Stitch in Haste

A self-contained comment left elsewhere:

While I certainly embrace cynicism toward the politicians, I don't entirely embrace cynicism toward the gas tax itself.

The gas tax is either a legitimate Pigou tax or it isn't. Reasonable people can disagree on that.

But what reasonable people cannot disagree on is the absurdity of suggesting that the gas tax can somehow be a legitimate Pigou tax on Thanksgiving Day but not on Independence Day.

So in that sense, "advantage Obama." (The fact that he may have flip-flopped on the issue [since his state legislator days] simply returns them to "Deuce.")

One should also note the Econ 101 truth that abolishing a per-unit tax on a good will not lower the equilibrium price of the good by the full amount of the tax, but only by a fraction of the tax — the size of the fraction determined by the price elasticity of demand for that good. Gasoline and diesel demand may be very price inelastic, but not perfectly so.

(Inspired by posts at QandO, Reason, Greg Mankiw, DealBreaker.)

---

Via Obsidian Wings:

Dean Baker: "Actually, almost all economists would agree that the tax cut proposed by Senators Clinton and McCain would save consumers nothing."

I sincerely hope that none of those "almost all economists" are teaching Econ. 101, because they are dead wrong.

Tax incidence is determined by BOTH price elasticity of supply AND by price elasticity of DEMAND.

Even if supply were highly inelastic (a questionable premise except in the very very short run), the low elasticity of demand (NOT a questionable premise under any circumstances) would far outweigh the supply effects and the bulk of the rebate would therefore be passed on to consumers.

(This is not to say I advocate any candidate's specific policy position.)

More on this from Econbrowser, which estimates that the benefit of a tax holiday would be shared roughly 50-50 by buyers and sellers.

Finally, let's also recall that:

--The federal gas tax is a puny 18.4 cents per gallon.

--There is a difference between an oil producer and an oil refiner.

--Record profits mean record taxes on those profits.

--There is more to "oil" than "gasoline." The markets for diesel and jet fuel also factor into the economics of "the price at the pump."