Gas Tax Holiday: Yea or Nay?

Increased unleaded and diesel fuel prices are undoubtedly putting the screws to our economy.

Higher fuel prices means higher shipping costs which, in turn, results in higher prices for anything that must be shipped a considerable distance from its point-of-manufacture/point-of-harvest to a sales outlet of any kind. Items fabricated from multiple smaller parts that must be shipped over long distances and/or through convoluted shipping lanes only make matters worse, not to speak of commodities that must be harvested or mined using equipment that burns diesel fuel. It would seem that lowering the price of fuel would bolster the economy, but would it really? Let us consider carefully why fuel is as expensive as it is (price-fixing conspiracies aside).

The major reason why fuel is expensive is related to supply and demand. Supplies of crude oil are not increasing (stagnant production levels are to blame; reserves are not the primary issue) while demand is increasing on a worldwide basis. The international demand for crude oil is making it more expensive to deliver crude to the United States which, in turn, makes petroleum distillates more expensive at the pump. Our inability and/or unwillingness to expand domestic production of crude oil and build more petroleum refineries only worsens matters.

The most stable and sane way to reduce fuel prices would be to either reduce demand for crude or increase supply of crude, either on a national or international basis, though the effects of crude oil price reduction can only go so far due to our limited refining capacity. Theoretically we could purchase petroleum distillates from other countries, but that could only be done at a premium which would further exacerbate our fuel price problems. A massive reduction in crude pricing would be necessary for us to be able to buy distillates from foreign refineries at acceptable price levels. Realistically speaking, if we ever want to see cheap gasoline again, we would need significant increases in both crude oil supply and domestic refinery capacity.

Sadly, raising petroleum output and increasing refinery capacity is both expensive and time-consuming. We have the oil reserves and the wealth necessary to do both, but the will to do so is notably lacking; oil drilling and refining operations have come to be seen as being so dirty, nasty, and undesirable that many Americans would be quite pleased if we never built another oil well or refinery again. Two of our Presidential candidates would rather dabble with a gas tax holiday than deal with any kind of long-term solution to the fuel supply issue. While a gas tax holiday might seem like a good idea, one must take into account that reducing the cost of gasoline at the pump via a tax cut will make buying larger quantities of fuel more possible (and therefore more acceptable). If enough people begin consuming more fuel once gas taxes are dropped, the laws of supply and demand will kick in, causing fuel prices to jump again due to an artificial spike in demand. A gas tax holiday would not be much of a holiday for anyone after a few weeks of increased fuel consumption.

Normally I am not a big fan of taxes, and I agree with the idea of suspending gasoline taxes at least in principal, if not in practice. But, the real issue here is supply. Reducing or removing the gas tax will not increase fuel supplies to the point that a real, stable reduction in fuel prices would be possible. Perhaps if we find ourselves in a situation in which gas prices are easing their way downward due to increased fuel supplies, then we can consider the possibility of reducing or eliminating gas taxes as a way to spur economic growth without the fear of producing fuel shortages and/or higher fuel prices. Of course, efficient automobiles could help reduce demand which would help stabilize the petroleum distillate market, and alternative fuels could get us off petroleum partially if not altogether.

Until we can outgrow our fuel problems technologically, we must deal with them economically, and the economics of a gas tax holiday are not that great. It might not hurt us all that much to create such a holiday, but it certainly won’t provide us with any long-term solutions. Surely our Presidential candidates can come up with better ideas than that?

Matthew Anderson is a non-violent postal worker, freelance columnist, father, husband, and oddball.
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