Philip S. Dedig – 5/18/08

This page was last updated on May 18, 2008.

Gas tax holiday is needed; Philip S. Dedig; Beaver County Times; May 18, 2008.

Below is a detailed critique of the letter.

“I agree with John McCain’s and Hillary Clinton’s proposal to have a federal tax holiday on gasoline for the summer months.”

[RWC] It’s no surprise to see this letter from Mr. Dedig defending a Hillary Clinton position. You see, in “One candidate stands out,” Mr. Dedig announced his support for Mrs. Clinton. The rest of the letter is pretty much a set of talking points intended to support the bad move. It’s a bad move because a tax reduction like this is intended solely mitigate the effect of price increases. When you artificially decrease the price of a commodity or service, you’re also increasing demand from what it would have been otherwise.

“It should have been incorporated in the stimulus package passed by Congress and signed by the president.

“Americans need their cars for work, errands and shopping. When driving is restricted by the high cost of gasoline, it will have an adverse effect on the economy. People will spend less, and consumer spending is 70.8 percent of the gross domestic product.

“The economy is hovering just above recession levels, and lowering gasoline prices makes sense.

“The federal tax on gasoline is 18.4 cents a gallon, and if the states would reciprocate, it would reduce the price of gasoline, on average, by 47 cents a gallon. Lowering the price of gasoline would also help farmers and truckers.

“Tax holidays on gasoline are not new. Indiana had one in 2000, and it was successful in stimulating its economy.

“The downside of eliminating taxes on gasoline is that it will reduce revenue for highway construction and repair. This is only a small part of the economy, and for a short period of time.

“Congress has passed legislation to stop buying oil for the Strategic Petroleum Reserves and to start deploying it in the open market. This would increase the supply of oil and help stabilize the price of gasoline.”

[RWC] Dream on; it’s pandering pure and simple. We were buying at the rate of 70 MBPD to fill the SPR, already at more than 96% of capacity. 70 MBPD is only about 0.3% of total U.S. consumption (20,698 MBPD in 2007) and less than 0.08% of total worldwide consumption (83,607 MBPD in 2005). Those figures mean an insignificant impact on the oil market.

“Congress should also cancel tax incentives for the oil companies, which amount to $18 billion. These companies are making record profits, and it doesn’t make sense to give them tax breaks.”

[RWC] Mr. Dedig and I actually agree on this point, though my position has nothing to do with profits. I believe there should be no such thing as “business taxes” on any business, therefore there should be no “tax breaks.” So-called business taxes are nothing but a means to hide actual overall taxation from the populace. All taxes remitted by businesses are actually tax payments by you and me.

“The demand for gasoline is down by 1 percent, but the price of gasoline is skyrocketing. OPEC, the oil companies and commodity traders are taking advantage of us by the artificially inflated prices we are seeing at the pump.”

[RWC] I don’t know where Mr. Dedig got his comment that “demand for gasoline is down by 1 percent,” but the latest (4/24/08) data posted by the U.S. EIA indicates U.S. demand was up about 0.26% in the first two months of 2008 relative to the first two months of 2007. In any case, I doubt a reduction of only one percent would have a significant impact, especially when you remember the oil market is a worldwide market and not limited by what happens in the U.S. Mr. Dedig failed to mention the impact of a weakening dollar, though I don’t know the effect of the weaker dollar.

How does Mr. Dedig define an “artificially inflated price?” Note Mr. Dedig never says what the evil oil companies are doing wrong. He’s simply making a drive-by accusation. People like Mr. Dedig have been making “market manipulation” assertions about the oil companies for decades, yet every investigation has shown that not to be the case.

“These prices are due to market manipulation, not supply and demand. This is hardly a good example of free-market capitalism.”

[RWC] In case Mr. Dedig hasn’t noticed, his candidate doesn’t believe in “free-market capitalism.” Indeed, in this letter Mr. Dedig himself eschews “free-market capitalism” by advocating the government attempt to affect the price of diesel/gasoline via diesel/gasoline tax gimmicks and artificially cutting crude oil demand. Using Mr. Dedig’s language, aren’t these attempts to artificially deflate prices?