Letters to the Editor
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Frost forgets to connect the dots
The gas tax is a gimmick. Frosts analysis here is actually advocating for two policies:
1. Another economic-stimulus check
2. Nationalization of the Oil Industry
Taxes have three effects: they take money from consumers, they take money from producers, and they cause a loss in consumer and producer surplus to economic inefficiency(dead weight loss). To make the argument for this tax cut is to say that cutting taxes will reduce burden on a consumer. However, both supply and demand are relatively inelastic in the short term, meaning the dead weight loss of the gas tax is near-0. That means that federal gas taxes place burden almost 50/50 on consumers and producers, with little to no deadweight loss. Cutting federal gas taxes, by 10 cents/gallon will, more or less, result in prices at the pump falling by 5 cents/gallon, and producers taking 5 cents/gallon in extra profits.
What the Frost missed in his analysis is this: While the consumers are gaining a nickel/gallon in benefit, they are also losing a dime/gallon in tax revenue. In other words, taxing gas is actually beneficial to consumers, because we could write a check from the federal gov't to everybody out there for the amount that the tax costs them, and still have money left over. This "money left over" effectively is tax on oil company profits above a specific point.
When Frost suggests the additional profits given to oil companies will be subject to a tax? It sounds great... but those additional profits were previously being taxed at 100%. The new tax will, clearly, not be that much, meaning that this policy operates as a tax break to oil companies. Frost counters that by asserting that by making it against the law for oil companies to pass the price on to consumers, the burden will stay on the oil companies. It sounds great, but what does that mean? The US Government should set gasoline prices, more or less. In other words, nationalize the oil industry. If Frost is advocating that, which it appears he is, he should make that point directly. It's a reasonable proposal, but one that should be analyzed on its own merits, not by arguing for it as some "we're fighting the big bad oil companies" policy.
In short, we can give the current policy the benefits of the gas tax holiday by:
1. Sending people a check
Or we can give the gas tax holiday the benefits of current policy by:
1. Defining a national price of gasoline
2. Taxing oil companies
3. Auditing the books of oil companies to make sure they're complying
Which one is easier?