Do you know the difference between a moral and an economic argument? For Clinton and McClain it is a moral issue not an economic one. Economists do not recognize morality, so leave their arguments out of it.
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Gas Price Fixes that Won't
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That's IF prices actually dropped 18.4 cents per gallon. However, there's every indication that they wouldn't. Here's why: According to the basic principles of supply and demand, cutting the price of an item causes people to buy more of it. That's why stores put items on sale. But when something is priced too low, consumers will buy it faster than it can be manufactured, which leads to shortages.
For gasoline, this means that cutting the price by 18.4 cents per gallon -- even though that's only about five percent of the current going rate -- will likely stimulate demand for more gas, economists say. Unfortunately, there's not all that much more gas that can be provided to U.S. consumers. The refineries that turn crude oil into gasoline are already working at close to full capacity. According to the Department of Energy (DOE), U.S. refineries have the capacity to process 17.4 million barrels of oil each day. Since only about 46 percent of a barrel of crude oil is converted to gasoline, U.S. refineries, operating at their peak, can produce only 8.06 million barrels per day of the stuff most cars run on. But the DOE also says that the U.S. consumes 9.25 million barrels of gasoline per day. In other words, American motorists are already using about 1 million more barrels of gasoline per day than American refineries can produce.
With the supply of gasoline pretty much fixed (at least in the short term), the increased demand triggered by the price cut will lead consumers to bid up the price of gas. Len Burman, of the nonpartisan Tax Policy Center, says eliminating the federal tax won't actually lower the price of gas because "supply constraints will push pump prices near their pre-holiday levels." He goes on to warn that "If that didn't happen, there would be shortages." The libertarian Cato Institute's Jerry Taylor agrees that a short-term gas tax holiday will have "little impact on pump prices."
For all the legislative prowess of McCain and Clinton, we're doubtful that either candidate can rewrite the laws of supply and demand. That 18.4 cents per gallon won't go to consumers. Instead, the proposal will simply shift that money from government coffers to the oil companies. We're willing to grant that if the laws of economics themselves took a holiday and the price did drop that much, the amount saved might be meaningful to many motorists, particularly those who are low-income and those who drive a lot. And there would likely be all kinds of ancillary benefits involving price reductions for food and other products that have to be transported, as well as airline tickets and the like.
But we can't find any economists who think we'll actually see that drop in the price of gasoline. Others have tried and failed as well. And the Clinton campaign hasn't produced one, either.
Plucking from the Profits
There's another catch to the McCain and Clinton proposals. Currently, the gas tax is deposited directly into the Highway Trust Fund, which is used to pay for upgrades to roads and bridges. The American Society of Civil Engineers estimates that the three-month gas tax holiday could cost as much as $8.5 billion.
McCain has responded by pledging to fund the Highway Trust Fund out of general revenues. That, of course, means adding another $8.5 billion in federal debt, which in turn means adding as much as $383 million per year in interest payments.
Clinton's plan is somewhat more complicated. She promises to impose "a windfall profits tax" on oil companies -- the mechanics of which she hasn't outlined -- and use that to fund the gas tax holiday.
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