Yesterday I applauded the Administration’s actions with the Strategic Petroleum Reserve and fuel standards as very sensible and appropriate responses to the current problems. No doubt there will be any of a number of other proposals to “do something” that would cause more harm than good. Cutting gasoline taxes definitely falls in that category.
Tax Policy Blog notes the following story from yesterday’s Buffalo News:
Four Republican Assemblymen called Monday for the State Legislature to return to session this week and suspend the state portion of the sales tax on gasoline in time for Labor Day weekend.
Sounds reasonable, perhaps. But cutting the gasoline tax would give motorists virtually no relief from soaring gasoline costs. The reason is that the high gasoline price is a symptom of the problem, not the cause. The core problem is that we have to face a reduction in the available supply of gasoline. That means that somehow consumers must be forced to use less gasoline. Unless we institute rationing, the way that has to happen is for the total cost of the gasoline to consumers (the tax plus the price received by the seller) to rise high enough to choke back demand. If we reduce the tax but do nothing to increase the available supply, the price received by the seller would just go up by the amount that the tax was cut.
Sometimes that increased price received by the seller might create an incentive for more gasoline to be brought to the market. But in the current situation, there’s not much that anyone can do to produce more gasoline on a short-run basis. All that lowering the gasoline tax would accomplish in the present situation is to provide even bigger profits for those with gasoline to sell, leaving the total amount that the consumer pays for the gasoline exactly where it was.