Letters to the Editor
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Some criticisms
The following are four points Frost says Obama is making and the reasons I believe Frost's criticisms are wrong.
1. Obama claims the gas tax cut won't help consumers.
First of all, who does Frost want to help? He tries to make us feel sorry for poor people who spend an inordinate portion of their income on gasoline, but if you cut the price of gasoline then you help people proportionally to the amount of gasoline they buy, which means most of the benefit goes to people at the upper end of the income distribution. If you want to help poor people, you should make "being poor" a qualification for the benefit. This is the same kind of argument as Bush saying that his tax cuts "helped the economy" -- they did, but if his actual goal was to help the economy, then he could have had the same effect for a quarter of the cost.
Next, Frost tries to figure out what kind of price effect the tax cut will have. He assumes that the overall United States market for gasoline is comparable to the Illinois market, which is quite a stretch. Illinois has an elastic supply compared to neighboring states, while the country as a whole has a fixed supply because 90% of gasoline is refined domestically. So if only 60% of the Illinois tax cuts were passed through to consumers, the prospects for a nation-wide tax cut can't be very good.
2. Obama claims the gas tax cut is an opportunity for oil companies to raise prices.
Frost links to a piece of analysis by the government energy information administration and seems to misrepresent it. Frost claims that gasoline inventories are "very high". What the link actually says is that gas inventories are a bit above the mean for this time of year, and falling sharply as refineries cut production because margins on gasoline are at relative lows. Crude oil prices are so high that gasoline markets won't support prices that are much above refining costs -- this actually bolsters Frost's argument, because it means than gasoline supply is more elastic than usual. But with prices so high, I expect that demand is significantly more elastic as well. So in the end it's hard to say whether oil companies will get almost all of the benefits, or simply most of the benefits -- note that the optimistic economist Frost triumphantly cites predicts that consumers will get a whopping 25% of the benefit.
3. This is an inducement to drive more
Frost quotes a study that says the short-term price elasticity of demand for gasoline is 26%. assuming this is true, a 5% tax break for 3 months would increase gasoline consumption by 400 million gallons and boost global carbon dioxide emissions by nearly a tenth of a percent. (This is assuming the tax cut actually affects prices, of course.) I think Frost is being a little indulgent to say that this equates to "little if any long-term effect," but clearly it could be worse.
As other letters have mentioned, the political effects of the gas tax holiday are scary -- the entire premise of the tax cut scheme re-enforces the notions that gasoline should be cheap, that we're entitled to consume as much of it as we want, and that the government should only tax "greedy companies" and should leave wasteful consumers alone. This is counter-productive to any and all future climate-change legislation.
4. This gas tax holiday may drain highway funding.
We absolutely need to impose new taxes on oil companies. If we tax oil, coal, and natural-gas producers directly, based on the carbon intensity of the fuels they sell, then in a single move we can put a price on 95% of (domestic) carbon emissions in a fair and transparent way. This will seamlessly induce every single decision-maker in the country to choose less-carbon-intensive products and services, and we could of course give the proceeds back to disadvantaged individuals. It's going to be orders of magnitude more difficult and time consuming to enact strange new taxes on the oil industry than to cut an existing tax on gasoline. So it's pretty disingenuous for Clinton to act like this is an easy deus ex machina way to pay for things.