Sunday, May 04, 2008

The Politics of Gasoline Prices

Of the three people who potentially could be President of the United States, two of them favor a suspension of the 18.4 cent/gallon federal tax on gasoline for the summer driving season. Both Democrat Senator Hillary Clinton and Republican Senator John McCain favor this action to help make gasoline less expensive while Democrat Senator Barack Obama opposes the plan. Obama called the idea a political stunt. "It's a shell game,” he said. "This is a plan that would save you pennies a day for the summer months.”

He’s right about the amount of savings. A person driving 30 miles a day for the 92 days of June, July and August would use 138 gallons of gasoline in a vehicle that gets 20 miles per gallon. The federal tax on 138 gallons of gas is $25.39, and that works out to a savings of 28 cents per day. But if all taxes are removed, the savings approaches 50 cents per gallon, nearly tripling the savings through the summer months.

But what Obama is missing is that you either believe gas prices are too high, or you believe they aren’t. If you believe they are too high, then reducing the price is desirable, the cutting a gallon of gas by 18 cents has to be a positive, and cutting a gallon of gas by 50 cents is even better. So, what difference does it make whether that is done through removing the federal tax on gas, or lowering the price per gallon by some other means?

Obama fears the effects of the loss of tax revenue, and that is a factor. However, any other way that government employs to reduce the price of gas will also have an effect, although the fallacious concept of “windfall profits” as something sinister and greedy has convinced many people that punishing oil companies is acceptable, and even good.

The real problem with any of these ideas is that it requires government to directly intervene in lowering the price of gasoline, and that is wrong.

High gasoline prices are the result of a few factors, primary among which are the amount of oil for sale, the amount of oil needed, the fact that the United States does not drill for and collect its domestic reserves, and the fact that the U.S. has insufficient refining capacity, and has made building new refineries so expensive that the oil companies can’t do it.

There is a greater demand for crude oil than there is the supply to fill it, which drives up the cost of crude oil, and crude oil is by far the largest factor in the price of gasoline. If environmentalists had not opposed allowing U.S. oil companies to drill in the Gulf, off the California coast and in ANWR, there would be more oil on the market, thus lowering crude oil prices, and American companies would own the crude oil they drilled.

If environmentalists had not opposed the building of new refineries and supported regulations that made building refineries too expensive, refining costs would be lower, more oil would be refined in the U.S., there would be more gasoline available, and the price at the pump would be lower.

Essentially, we have caused our own problem. As Jeremiah Wright might say, “Our chickens have come home to roost.”

Democrats are the primary opponents of both domestic drilling and refinery building, and now Democrats propose as solutions for high gasoline prices putting a windfall profits tax on oil companies, who would gladly have done the things necessary to reduce our dependence on foreign oil and keep prices down if only the Democrats had allowed them to, and whose profits have grown precisely because the Democrats didn’t allow them to drill and build refineries, and forced them to buy more oil for foreign sources at much higher prices.

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