I'll Shill for Hillary
Hillary’s having trouble finding an economist to back her suspension of the gas tax. But she need look no further – I’ll rise to the challenge. Here’s my economic case for the tax cut:
1. The American people want to “do something,” and Hillary’s tax cut will at least do little harm. As I argued a while back:
No one is going to listen to the politician who says “Do nothing.” Under the circumstances, I can’t think of a single politically viable policy that would be better than cutting the gas tax. Maybe it would mildly reduce the price of gas. But even if supply is so inelastic that 100% of the tax cut goes to suppliers, it is easy to overlook a big social benefit: Tax cuts have a good chance of politically crowding out price controls and worse.
2. If (due to highly inelastic short-run supply) 100% of the tax cut goes to producers, that’s not a bad thing. It helps to balance out the long-run disincentive effects of populist measures. Think about it this way: If energy crises were equally likely to provoke price controls or tax cuts, oil companies would be more likely to keep searching for new energy sources during crises.
3. The short-run elasticity of supply in probably near-zero for the world market, but Hillary’s tax cut affects only the U.S. So as I argued previously, American consumers will at least get a moderate piece of the tax cut:
If one part of the world cuts taxes and the rest doesn’t, then gas flows into the lower-tax area, and consumers in that area benefit. This is clearly true for state-level gas taxes. If Virginia dropped it’s gas tax, more gas would flow into Virginia. And since the U.S. is just one corner of the world economy, cutting gas taxes in the U.S. would cut U.S. gas prices – even if global production is unchanged.
With arguments like these, I doubt that I’ll be getting any phone calls from Hillary’s team. Her proposal is defensible; it’s just not defensible using arguments that the American people wants to hear.