The Federal gas tax is currently at 18.4 cents per gallon. John McCain proposes a national holiday of this gas tax between Memorial Day and Labor Day this summer. Let's say his proposal passes through both houses of Congress and President Bush signs it into law. What happens?
1. The 18.4 cent Federal gas tax is no longer charged.
2. The price at the pump drops, say, 15 cents per gallon.
3. People buy more gasoline because it's cheaper! Hurray!
4. Uh oh, the supply of gasoline hasn't actually gone up. The price at the pump creeps back up to $4 to regulate demand as gasoline follows the law of supply and demand.
5. Big Oil pockets the 18.4 cent difference and makes even more money because they don't have this federal tax expense! Hurray for them and their stockholders! Hurray also for the foreign oil companies from whom the U.S. imports over half it oil.
John McCain says "The effect of this 'gas tax holiday' will be an immediate economic stimulus" -- and he's right. It will be an immediate economic stimulus to the Big Oil Companies who are already making record profits. The proposed Federal gas tax holiday will provide zero benefit to the everyday driver, commuter and consumer. John McCain's proposed tax holiday benefits Saudi Aramco, the National Iranian Oil Company, Petróleos de Venezuela, Lukoil, Royal Dutch Shell, Petroleos Mexicano, Petrobras, ExxonMobil, Imperial Oil and all the rest while leaving America with no long term energy strategy.
That's this (or any other) administration's greatest nightmare. The only reason that we aren't papering our houses with $100 bills is because oil is sold in US$. If OPEC ever decided that it was to sell oil in Euros or Yuan, the american economy would collapse.
The gas tax would not cause a change in the supply of oil. There may be a slightly larger demand, but demand by Americans has not increased at a rate that calls for a 2$ price diff per gallon in 10 years, so I doubt it would change that much over a few weeks. The demand for gasoline has not decreased enough over the last few months we have had really high prices, so based on the elasticity of the market, there is not much growth available. Also, the gas you pump has long been pumped, processed, refined, etc. before it will see your tank, so the supply argument is shot. Oil is also traded as a commodity, which also greatly changes how the supply and demand chain works. The only way to see real negative change in the pockets of the oil companies is to reduce the amount of their product you use. As long as we continue to use our automobiles in the fashion that we do, the oil companies will continue to increase profits. I also think that McCain’s idea has an equal chance to the snowball I left on my running engine.
I think gas has doubled during the time crude has doubled. I haven't checked price history but that's the way it seems. The cost of refining shouldn't have changed much. Delivery only costs a little more. It seems like the rest of the price increase has gone somewhere other than to the Saudis. This would be no different.
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Anon 9:17 -- crude oil is a worldwide commodity. You're correct that U.S. demand has remained monstly constant over the past two years, but worldwide demand has shot up as India, China and other developing economies build up their infrastructure and benefit from globalization. In the meantime, global supply has remained almost constant -- worldwide oil production remains at about 85 million barrels per day.
Demand pressures have increased while supply remains constant = big price increases.
Well as a nice young man living in Iceland (a little island in the middle of the Atlantic and a part of Europe) we have some nice prices going on concerning gas, we pay no less than $8 for petrol and no less than $8.3 for diesel. I really wish I could get your $3-4 for the gallon, I'd think I would have won the lottery.