Suspending the Gas Tax - Island of Sanity

Island of Sanity

Taxes & Spending

Suspending the Gas Tax

Hillary Clinton has proposed suspending the federal 18-cent per gallon excise tax on gasoline to help consumers struggling with high gas prices.

At this point it appears unlikely that Hillary will be our next president, so you could say that there's little point in examining her proposed policies. But it's an interesting example of the thinking of politicians. And whether she is our next president or not, either this idea or one like it will surely come up again.

Hillary says that she will replace the government revenue lost from suspending the excise tax by imposing a "windfall profits tax" on the oil companies. Now let's think about this for amoment. If the proposed windfall profits tax will "replace" the revenue from the excise tax, she must mean that she intends that the total amount of money it brings in will be at least as much. So if we divide the total amount of money from the windfall profits tax by the number of gallons of gasoline that the oil companies sell, it must come to at least 18 cents. That would seem to be elementary arithmetic.

So Hillary's plan to help consumers struggling with high gas taxes is to replace the current 18-cent per gallon tax with a new 18-cent per gallon tax. Uh, yeah, that ought to help.

Is it necessary to point out that this tax will be paid by consumers? If the government imposes a tax on oil companies that comes to 18 cents per gallon, the oil companies have to get that money from somewhere. They can't create it out of thin air. Even if they wanted to take the money out of their profits, that wouldn't be possible. The oil companies make a profit of 8 to 9 cents per gallon sold. The tax is twice their total profits. So the only place for the money to come from is the consumer.

Hillary has clearly said that the excise tax should be "suspended", not repealed. She's talking about stopping it for a few months. Yet when she talks about the windfall profits tax, I have never seen her quoted as saying that it will be temporary. So once the suspension of the excise tax ends, does this mean consumers will be paying both the excise tax and the windfall profits tax?

So Hillary's real plan to help consumers struggling with high gas prices is to replace an 18-center per gallon tax with a 36-cent per gallon tax.

This is called "helping working families".

© 2008 by Jay Johansen


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