Happy Holidays (Part 1)
This week, the national average for a gallon of regular unleaded gasoline is about $3.62, according to CNN. It’s hurting a lot of people who commute vast distances to work, or whose livelihoods rely on transportation. The Columbus and Cleveland areas are just sprawls of suburbs and bedroom communities, all pumped up as the nice, quiet places to live when the housing market was good and gas prices generally reasonable. Now, probably millions of people in Ohio are watching their pennies evaporate as they fill up every week. It hurts to watch $45 go into my Ford Focus, let me tell you. I remember when I could fill up for about $21.
I can’t remember which one started it. I think I heard about McCain’s plan first. It was the federal gas tax ‘holiday.’ Temporarily suspend the $0.18/gal federal tax on fuel, and people will feel the pinch a little less, at least for a few months. Then Clinton jumped on it, offering her own gas tax holiday, but this one would be funded by a ‘windfall profits tax’ on the oil companies that are reporting record profits for the last few years. Obama opposed any kind of holiday, as it wouldn’t solve the problem one bit. I tend to agree.
There are a lot of issues tied up in this tax holiday nonsense. The first one is that it is clearly just a ploy to get attention and votes. People are stressed by high fuel prices? Cut them a little break. Sounds good, right? I disagree. It’s a flawed strategy and in the end it won’t get anyone anywhere. It is the pinnacle of short-term thinking and if people fall for it, they’re going to suffer quite a bit more later.
Let’s just look at the mechanics of how the tax holiday works. Right now, in Mount Vernon, gas is $3.65 / gallon for regular unleaded. The tax holiday, as proposed by McCain or Clinton, if it started today, would last at most four months. So the price, today, would drop to about $3.47 / gallon. Meanwhile, the price of oil is still going up. The president of OPEC mentioned that $200 / barrel is not unrealistic by the end of the YEAR. That would cause gas to steadily increase during the four months of the holiday. Let’s be conservative and say that the increase would only be about $1.00 / gal (about 31% of the current cost of oil, with approximately $2.98 of oil / gallon), putting gas up to $4.47 / gal by the end of summer. Then, when the tax holiday ends, it shoots up another $0.18 immediately. Ouch. We’re already plagued by the mindless fluctuations of the market, why not throw a governmental monkeywrench in it, as well?
NEXT: The Numbers Game
