Politicians’ lack of understanding of the most basic economic principles is stunning. Do they not have advisers to tell them the obvious, or is obtaining a political goal worth ignoring reality?
President Biden’s proposed gasoline tax holiday is the latest counterproductive idea about energy, an economic segment where they never seem able to touch upon understanding. Gov. Phil Murphy almost deserves credit for rejecting Biden’s suggestion to match a temporary suspension of the federal gas tax with some time off from paying New Jersey’s gas tax. But alas, Murphy rejects the idea for the wrong reasons.
Biden would suspend the 18.4 cents a gallon federal tax for three months. Even if this break reached suffering motorists, it would be chump change when gas prices are nearly $5 a gallon. There is no guarantee prices at the pump would fall 18 cents, and surely they wouldn’t — maybe not at all. The federal gas tax is paid by refineries on their output, and oil refiners have suffered from the pandemic and political demonizing of fossil fuels. Refineries could pocket much of the 18.4 cents a gallon break and still charge wholesale buyers less.
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Suppose the federal gas tax holiday actually reached motorists, and it was matched by New Jersey suspending its 42.4 cents a gallon gas tax. Sixty cents a gallon might make a difference to some drivers. If it did, though, they might not try as hard to limit their driving and the expensive gas it requires.
Give people a discount on something and they buy more of it. Jack up the price and they buy less of it. High prices are reducing the world’s current and anticipated demand for gasoline and oil, so prices have started to fall. Further drops will depend on other factors, such as high inflation and political manipulation of energy markets against fossil fuels.
Murphy already has ruled out suspending New Jersey’s gas tax and making Biden’s proposed holiday more than three times as big. The state gasoline tax is dedicated to road building, repair and related transportation improvements — funding projects underway and planned.
“It’s constitutionally tied to infrastructure projects that you’d have to stop, and then when you restarted them, it would cost all of us including taxpayers more money,” Murphy said recently. Glad to hear him at least speak in favor of the careful and efficient use of the public’s money.
The federal government, too, dedicates its gas tax revenue, mainly to highways and mass transit in funds distributed to the states. That didn’t stop Murphy from endorsing a federal gas-tax holiday, since spending by the Biden administration is even less constrained than his in New Jersey.
“The reason why the (federal government) can do it is, quite simply, they can print money, and we can’t,” Murphy said recently. That statement’s enough to prompt prayers of gratitude even among atheists.
Gas taxes are legitimate user fees if the revenue is spent on the costs associated with automotive transportation. They are also a consumption tax that can be used to encourage or discourage activities.
We urged governments years ago when gasoline was cheap to consider raising the tax on it to pay for transportation infrastructure or even to encourage drivers and the auto industry to choose more efficient vehicles. That would have helped keep the price and consumption of gas moderate.
Now it’s far too late, and the big surge in revenue from soaring prices is being pumped into the very oil companies, refiners and oil producing nations that politicians publicly criticize. Maybe they see benefits there that they aren’t revealing to the public.
