Gas Attack

Charles Krauthammer has written favorably of adding more taxes to the cost of gasoline:

For 32 years I’ve been advocating a major tax on petroleum. I’ve got as much chance this time around as did Don Quixote with windmills. But I shall tilt my lance once more.

NB: 32 years ago, Dr. Krauthammer was a speechwriter for Walter Mondale, bitterly opposing Ronald Reagan’s free-market principles. While he now is a Republican, he has not shaken all of the liberal dirt from his roots.


Why Now?

The only time you can even think of proposing a gas tax increase is when oil prices are at rock bottom.

Let’s think about why this is true. The reason is that when gas prices are high, the harm that they do to the economy is so completely obvious that it would be absolutely ridiculous to propose such a tax. But if it’s already there, it’s much harder to get rid of, as government rarely volunteers to reduce its own income.

When I last suggested the idea six years ago, oil was selling at $40 a barrel. It eventually rose back to $110. It’s now around $48. Correspondingly, the price at the pump has fallen in the last three months by more than a dollar to about $2.20 per gallon.

So he proposes to raise the price of gas by nearly 50%! An extremely “regressive” tax in Marxian terms, causing the greatest harm to Americans who commute or otherwise use automobiles to make a living, and adding a cost for all products that are ever transported or shipped, or every business affected by such costs. In other words, everyone.

As a result, some in Congress are talking about a 10- or 20-cent hike in the federal tax to use for infrastructure spending. Right idea, wrong policy. The hike should not be 10 cents but $1. And the proceeds should not be spent by, or even entrusted to, the government. They should be immediately and entirely returned to the consumer by means of a cut in the Social Security tax.

Revenue Neutral?

What he’s proposing sounds revenue-neutral. Take from here, and put there. If that were truly the case, it could be done by an internal transaction. But the liberal Dr. Krauthammer wants to punish people until they behave in a way that he thinks is appropriate, as we’ll see:

The average American buys about 12 gallons of gas a week. Washington would be soaking him for $12 in extra taxes. Washington should therefore simultaneously reduce everyone’s FICA tax by $12 a week. Thus the average driver is left harmless. He receives a $12-per-week FICA bonus that he can spend on gasoline if he wants — or anything else. If he chooses to drive less, it puts money in his pocket. (The unemployed would have the $12 added to their unemployment insurance; the elderly, to their Social Security check.)

Notice that he is talking about numbers per week, an attempt to minimize the actual very large amounts of money that are involved here. And also how many different income streams would be affected. Plus, since tens of millions of people are no longer in the labor force but also not on SS or UI, this simply dings them with no balance. We know that this policy would not survive such harm to the Democrats’ base, so whole new distribution schemes would be set up to give money to them.

Punish and Reward

The point of the $1 gas tax increase is not to feed the maw of a government raking in $3 trillion a year. The point is exclusively to alter incentives — to reduce the disincentive for work (the Social Security tax) and to increase the disincentive to consume gasoline.

Bingo. To punish and reward. But is the Social Security tax a real disincentive for work? I don’t think that any poll has shown this to be true. What IS well-known is that the price of gas has a major impact upon the economy, just as the price of energy in general, when low, lifts populations out of poverty.

It’s win-win. Employment taxes are a drag on job creation. Reducing them not only promotes growth but advances fairness, FICA being a regressive tax that hits the middle and working classes far more than the rich.

Dr. Krauthammer makes the mistake here that too mamy make, and not just on the left. “Rich” is not “high income” which is what he really meant. There is no Social Security tax on wealth, just income.

But indeed, SS has less effect on high income earners; there’s a cutoff. Why? Because it returns less to those folks — and in fact, may return little or nothing if their income after retirement remains high. Despite their contribution to SS, Obama and others want to increase “means testing” and other mechanisms to make it clear that this was never a guaranteed savings account as originally advertised.

The US and China

As for oil, we remain the world champion consumer. We burn more than 20 percent of global output, almost twice as much as the next nearest gas guzzler, China.

A $1 gas tax increase would constrain oil consumption in two ways. In the short run, by curbing driving.

And curbing our economy, which has also become (thanks to thinking like Dr. Krauthammer’s) smaller than China’s. The US is no longer the world’s largest economy, and this will soon impact us all as the US will lose its ability to sell its debt cheaply on the world market. A topic for another day.

In the long run, by altering car-buying habits. A return to gas-guzzling land yachts occurs every time gasoline prices plunge. A high gas tax encourages demand for more fuel-efficient vehicles. Constrained U.S. consumption — combined with already huge increases in U.S. production — would continue to apply enormous downward pressure on oil prices.

* * *

And finally, lower consumption reduces pollution and greenhouse gases. The reduction of traditional pollutants, though relatively minor, is an undeniable gain.

I am one who will deny it. As he said, the actual effect is minor, but the cost imposed of all of America as he “punishes” us will be large, and felt by everyone who buys anything at all.

Global Warming Skeptics, Too?

And even for global warming skeptics, there’s no reason not to welcome a benign measure that induces prudential reductions in CO2 emissions.

All of the “we’re all gonna die” hype from catastrophists has not panned out, and the effect has instead been positive. The Maldive Islands are not sinking, the ocean rise has not accelerated, sea ice is where it was decades ago, temperatures are if anything too cool, and extreme weather is reduced. Of course. But CO2 has a very positive effect indeed on plant growth, and it is helping to feed the entire planet. Why would we care to reduce this?

Plants had been using and storing CO2 for millions of years, reducing it from several thousand PPM when they evolved to only a few hundred. Plants are loving the small increase.

Gasoline hasn’t been this cheap since 2009. But why now, and how long will prices stay low?
When oil prices were skyrocketing in 2008, Bush announced that he would move to end the moratorium on drilling. This collapsed oil prices by two-thirds, as I predicted at the time.


So, here is Dr. Krauthammer, paraphrased:

“Let’s implement a massive regressive tax on the poor and working class, and transfer their excess wealth to retired people! And let’s put all of this in the hands of the government that has mismanaged the finances originally planned for retired people, so the government can siphon this off as they’ve been doing for years!”

But unspoken:

“And, since we know that cheap energy boosts economies and lifts populations out of poverty, that tells us to make energy much more expensive!”

No, I do not agree with Charles Krauthammer in this notion. He often has good things to say, but he has yet to completely shake off his history of being a big-government liberal speechwriter for a Democrat opposing Ronald Reagan. He’s still thinking in terms, despite is protestations, of “feeding the maw” of big government to solve problems.

The Wrong Problem

When we are increasing our debt by nearly a trillion dollars a year, but our approach is to take more money and add to spending, we are not serious about the core issues.

The outsourcing of jobs is not anywhere near as large an issue as bringing in millions of illegals to take current jobs — and merely making them legal doesn’t make it better. According to OSHA, 45% of construction workers in the entire country are not American citizens, and 25% of all construction workers are illegals. This is not a case of “jobs Americans can’t do” — it is jobs we’ve always done, but no longer can compete because we have brought “overseas low-wage workers” here.

==============/ Keith DeHavelle