PUBLIC POLICY AND GAS PRICES

Sure, it sounds like a wonderful idea, Gregg, just raise the gas tax and reduce gasoline consumption, traffic congestion and environmental degradation! This article provides a few key lessons in public policy decision-making problems. Gregg insists that the country would be better off today if we had adopted a 50 cent per gallon tax that Kerry supported in 1994. Problem one: how do you measure "better off" and, more importantly, better off for whom? (He also admits that those industries affected by changes in demand for gas might be adversely impacted, but oh well!). Next, Gregg makes a flurry of wild, unsubstantiated claims about how world oil prices would now be lower, Persian Gulf states would have less of an influence on U.S. policies, global warming would be less of a threat, etc. Problem two: Proving such claims. Just because you jack up the gas prices, the rest do not necessarily follow.

At this point, Gregg asks the reader, "Don't all those things sound pretty good?" Quite frankly, Gregg, you sound like a jerk. But let's move on. He tries to pass this one off on the reader: "Ideally, proceeds from a revenue-neutral gasoline tax could be used to reduce income taxes and payroll taxes of the poor and lower middle class."

What does revenue-neutral mean? And what's so great about creating a tax on a consumption good, which means regressive taxation on the less fortunate members of society? Problem three: bad economic reasoning used to justify a public policy idea. We've tackled the economics of a general gas sales tax here before. In short, a sales tax does not simply mean the consumer pays 50 cents on top of the market price of gas at the pump. We trace out a summary of what is not seen in that previous post. There is nothing "neutral" about the tax. Ultimately, the tax is "paid" through the income of gasoline producers.

His last resort: telling us Greg Mankiw supported the policy. Who cares?

UPDATE: See also this previous post on Easterbrook.Calling Cards