Tbh the more I think about this one the more I disagree here that the tax holiday is a bad idea.
I definitely have not been happy with some of the Democrats rhetoric around 'greedflation'. I disagree with this because I do believe that there is enough competition among gas stations that prevent price gouging. I don't believe collusion is happening or even possible. Consumers also have technology now such as the GasBuddy app that helps keep the market competitive.
If you agree that the market is competitive and demand is relatively inelastic then doesn't removing a gas tax result in a partial benefit to consumers? Sure, you do also expect some demand increase and benefit to producers but as you point any remaining benefit that goes to consumers especially helps low-income families. It's a regressive tax to begin with, so why not take the opportunity to get rid of it and replace it with something more progressive down the line?
I do agree that the Federal gas tax holiday is a red herring with regards to lowering wholesale prices globally (because it removes an artificial constraint on demand), but I do believe that it helps low-income families domestically in the short-term. A far more egregious red herring I heard this week is calls to ban US crude oil exports! We need a piece from you on differences in crude qualities and the interconnectedness of the global oil market! I'd be interested to know why other solutions such as repealing the Jones Act (which I believe would help prices domestically) have not been floated as much.
Thanks for the comment! One of my goals of sharing these posts is to promote discussion and learn from each other rather than just prove why I’m right so thanks.
I agree that merchant gasoline distributors are in a competitive market, generally margins are very slim and retailers make higher profits on the candy and soda from convenience than from gas itself. However it is important to point out that many retailers are privately owned and just contain oil company logos for brand recognition purposes so the record profits that O&G companies are seeing isnt a result of the distribution of gasoline but rather from either the refining or crude oil costs from drilling. So retailers likely would pass on savings to stay competitive but upstream suppliers which are not as competitive may not.
You bring up a good point on why a gas taxes even exists in the first place. I suspect at some level you just have to tax something, whether that be transactions, income, property, inheritance, or capital gains, in general none of these things should be discouraged, but tax revenue needs to collected somehow. The idea of a pigouvian tax also plays here. Driving more causes more emissions, which leads to more climate change. By taxing gas, you’re discouraging driving and trying to account for this negative externality of emissions that no one individual realizes but we collectively realize in the form of climate change, even if it is regressive. So on this logic, taxes on gas are important.
If one were to ban US oil exporters, that would surely be catastrophic for global energy prices, but likely would help us domestically. I would be very careful about this however as retaliations may ensue. On the Jones act, I’d have to research more perhaps for another post :)
Hey of course I appreciate your work here. Love reading the blog and having these discussions!
We agree on retail prices at the pump being set in a competitive market then. I disagree that wholesale prices are not set competitively though. Definitely a lot of different variables with wholesale prices but now we’re talking about a global market here. USGC is constantly exporting gasoline to Latin American markets and the East Coast imports barrels from Europe. Many producers and traders constantly evaluating the arbs here. Ultimately I still believe that the increase in the price to the consumer in the scenario of lifting the gasoline tax would be driven by the marginal cost to produce the barrels needed to meet the increase in demand (with all else equal, my bet is this is less than the tax). Of course so many other factors driving demand right now so hard to isolate the impact of the gas tax, but on net im still having a hard time seeing how consumers don’t benefit from a tax holiday.
I’m ignoring externalities here because I’m just trying to focus on the merits of a tax holiday with regards to the short term benefit to the consumer. I agree that in the long term we want to disincentivize fossil fuel consumption, but think that’s a separate discussion right now. My thoughts here is that a regressive tax is not the best approach. They’re not politically popular, just look at the mass protests in France last time they raised the gasoline tax. I like better all the other ideas you mentioned that incentivize alternate modes of transportation or renewable fuels, and having the funding from this come from more progressive taxes (if taxes are even needed since this is really just a separate monetary & fiscal decision, right? 👀)
Yes! But there are a number of reasons not to do this. One being political, another environmental, another being that if refining capacity increased domestically to account for this supply shock, and eventually the war in Ukraine ends, suppliers would be left with over capacity and would be hurt economically. Also, it may not be straightforward to increase production given OPEC+ market power and delays in hiring / investment decisions (while we already in are in labor shortage and fears of a recession may lead to less risky investments). Thanks for the comment!
Tbh the more I think about this one the more I disagree here that the tax holiday is a bad idea.
I definitely have not been happy with some of the Democrats rhetoric around 'greedflation'. I disagree with this because I do believe that there is enough competition among gas stations that prevent price gouging. I don't believe collusion is happening or even possible. Consumers also have technology now such as the GasBuddy app that helps keep the market competitive.
If you agree that the market is competitive and demand is relatively inelastic then doesn't removing a gas tax result in a partial benefit to consumers? Sure, you do also expect some demand increase and benefit to producers but as you point any remaining benefit that goes to consumers especially helps low-income families. It's a regressive tax to begin with, so why not take the opportunity to get rid of it and replace it with something more progressive down the line?
I do agree that the Federal gas tax holiday is a red herring with regards to lowering wholesale prices globally (because it removes an artificial constraint on demand), but I do believe that it helps low-income families domestically in the short-term. A far more egregious red herring I heard this week is calls to ban US crude oil exports! We need a piece from you on differences in crude qualities and the interconnectedness of the global oil market! I'd be interested to know why other solutions such as repealing the Jones Act (which I believe would help prices domestically) have not been floated as much.
Thanks for the comment! One of my goals of sharing these posts is to promote discussion and learn from each other rather than just prove why I’m right so thanks.
I agree that merchant gasoline distributors are in a competitive market, generally margins are very slim and retailers make higher profits on the candy and soda from convenience than from gas itself. However it is important to point out that many retailers are privately owned and just contain oil company logos for brand recognition purposes so the record profits that O&G companies are seeing isnt a result of the distribution of gasoline but rather from either the refining or crude oil costs from drilling. So retailers likely would pass on savings to stay competitive but upstream suppliers which are not as competitive may not.
You bring up a good point on why a gas taxes even exists in the first place. I suspect at some level you just have to tax something, whether that be transactions, income, property, inheritance, or capital gains, in general none of these things should be discouraged, but tax revenue needs to collected somehow. The idea of a pigouvian tax also plays here. Driving more causes more emissions, which leads to more climate change. By taxing gas, you’re discouraging driving and trying to account for this negative externality of emissions that no one individual realizes but we collectively realize in the form of climate change, even if it is regressive. So on this logic, taxes on gas are important.
If one were to ban US oil exporters, that would surely be catastrophic for global energy prices, but likely would help us domestically. I would be very careful about this however as retaliations may ensue. On the Jones act, I’d have to research more perhaps for another post :)
Hey of course I appreciate your work here. Love reading the blog and having these discussions!
We agree on retail prices at the pump being set in a competitive market then. I disagree that wholesale prices are not set competitively though. Definitely a lot of different variables with wholesale prices but now we’re talking about a global market here. USGC is constantly exporting gasoline to Latin American markets and the East Coast imports barrels from Europe. Many producers and traders constantly evaluating the arbs here. Ultimately I still believe that the increase in the price to the consumer in the scenario of lifting the gasoline tax would be driven by the marginal cost to produce the barrels needed to meet the increase in demand (with all else equal, my bet is this is less than the tax). Of course so many other factors driving demand right now so hard to isolate the impact of the gas tax, but on net im still having a hard time seeing how consumers don’t benefit from a tax holiday.
I’m ignoring externalities here because I’m just trying to focus on the merits of a tax holiday with regards to the short term benefit to the consumer. I agree that in the long term we want to disincentivize fossil fuel consumption, but think that’s a separate discussion right now. My thoughts here is that a regressive tax is not the best approach. They’re not politically popular, just look at the mass protests in France last time they raised the gasoline tax. I like better all the other ideas you mentioned that incentivize alternate modes of transportation or renewable fuels, and having the funding from this come from more progressive taxes (if taxes are even needed since this is really just a separate monetary & fiscal decision, right? 👀)
Wouldn’t allowing drilling for more oil in the USA and allowing the pipeline allow for the cost of Crude oil to be lower?
Yes! But there are a number of reasons not to do this. One being political, another environmental, another being that if refining capacity increased domestically to account for this supply shock, and eventually the war in Ukraine ends, suppliers would be left with over capacity and would be hurt economically. Also, it may not be straightforward to increase production given OPEC+ market power and delays in hiring / investment decisions (while we already in are in labor shortage and fears of a recession may lead to less risky investments). Thanks for the comment!