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Obama drops ball on gas tax

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Also by Gerald Cox:

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by Gerald Cox

Sunday, May 4, 2008

As a lowly economics major, I should not be able to see egregious, laughter-inducing flaws within a major presidential candidate’s economic policies. So it was with initial amusement, and finally, abject horror, that I realized Sen. Hillary Clinton, D-N.Y., was not joking about her desire to suspend the so called “gas tax” for the summer.

One would expect the Obama campaign to expertly turn Ms. Clinton’s policy gaffe into some rather timely political capital. However, he has failed to frame the issue in a way that would speak to the pragmatic American voter.

How hard is it to explain this thing, anyway? Removing a tax that oil companies are required to pay means oil companies will make more profit, the federal budget deficit will get worse and consumers will not save money. So instead of this lofty “politics as usual” shtick, why not just come out and say the only ones getting a break from this tax break are oil companies?

Ms. Clinton is not removing a tax on the demand side — that is, consumers are not being taxed less. Instead, the tax she would remove is one paid by the oil company. This tax is passed on to consumers as higher prices at the pump. Ms. Clinton’s plan puts a lot of trust in oil companies, assuming that they will willingly sell their product for less in a reflection of lower taxes on their end.

If only Big Oil were so altruistic.

Remember the great clothing price reduction of the ’90s? How about the manufactured items price reduction of the early 2000s? No? Because it never happened. The cost of inputs has been plummeting as manufacturing has been taking up base in cheap labor nations like China. Things are being produced cheaper, but suppliers are not interested in decreasing their prices. I’ll bet my nascent reputation as an economist that the same sort of logic holds here: Give oil providers a summer of lower taxes, and the American consumer can expect little in the way of a consumer surplus. You may be able to buy a small, anthill-sized hill of beans with any savings you may somehow accrue. Unless you work for Exxon, in which case get pants with bigger pockets. Because you’ll be stuffing them full of dollars. Or Euros, what with that nasty bit of inflation the dollar is struggling with.

The second part of her plan calls for a windfall tax on oil providers — that is, a tax on oil providers making profits over a specific amount. See, the messy bit about suspending the federal gas tax is that America’s aging infrastructure and budget deficit would be knocked about like pins during a round of bowling.

So the money has to come from somewhere right? What to do, what to do? Bingo! Windfall tax on those nasty oil companies we just gave a tax break to! Uh, wait a moment. I thought the point was to remove taxes on oil providers so consumers pay less! In effect, in an effort to lower prices, we remove one tax, only to levy another on the same entity.

I see the contradiction. Every economist worth his salt sees it. Goodness, news outlets are even leaking that former President Bill Clinton knows this sort of economic tomfoolery won’t work. But do voters see it? Well, if they don’t, Mr. Obama sure isn’t doing a good job helping them see it.

The Obama campaign’s response to the Clinton campaign’s most pronounced mistake in some time has been terribly misapplied. Mr. Obama is getting caught up in his usual rhetoric of “Me vs. Washington.” See, he keeps forgetting what pragmatists the American voting public is. His rhetoric of post-partisanship, hope and healing America and all that is quickly becoming a rather fancy bit of blather since his credibility and golden boy aura have been successfully dragged through the mud by the Clintons, Republicans, an angry black man and a far-too-long primary.

Ms. Clinton, meanwhile, keeps appealing to our undyingly pragmatic nature. Even I, completely aware that this sort of thing simply does not work, was waxing hopeful for a moment. “Wow. It could work. I just might save … No! I’ve read the New York Times. I’ve taken my share of economics courses. I know this doesn’t work!”

But Mr. Obama isn’t appealing to voters’ pragmatic side in his critique of this economic rubbish. He’s casting this as a desperate ploy, a quick fix when a deeper, more sustained and effective approach is needed. Well, it must feel wonderful to be right, Mr. Obama, but being right isn’t winning you big swing states, now is it?

Level with the American people. Stop talking about short term gains and typical Washington thinking. Talk down to us. Be honest and just say it: “The only ones getting a tax break are oil providers. Ironically, they’re the ones being taxed even more, too!” Or better yet, just say “You won’t save money.” Those are four words the vast majority of the American public have not heard about this horrendous plan, and Mr. Obama had better start saying them. But Mr. Obama seems too caught up in his usual old-fashioned change rhetoric to pounce on the best opportunity his campaign has had in some time.

 

Gerald Cox (gcox@badgerherald.com) may be a senior majoring in economics and languages and cultures of Asia, but he’ll be back for a super senior year.