That being said, I don’t think a cut in the gas tax would reduce prices, because the market has already demonstrated a willingness to purchase x amount of gasoline at y cost. If the cost goes down, I think consumers would simply purchase z (some amount greater than x) for the same cost. In short: Cut the price (assuming the supply stays the same) and demand would increase.

Whether you increase gas purchased in the short-term or decrease gas prices in the short-term, you are increasing public welfare in the short term.

I’m not certain that gas prices really have risen to fast. But if they have, as Obama has claimed, Obama’s plan to add more costs to oil produces (through the windfall profits tax) and while denying consumers release (through reducing the gas tax) is certainly wrongheaded.

I’m not quite sure where Obama gets his information that gas companies don’t pass the cost of the tax onto the consumers, it seems antithetical the the generally held economic belief that companies will pass the cost of a tax onto consumers so long as the price increase will not drive down the quantity demanded and fuel has an inelastic demand curve in the short run, so it stands to reason that gas companies almost certainly do pass off the price of the gas tax onto consumer.

That being said, I don’t think a cut in the gas tax would reduce prices, because the market has already demonstrated a willingness to purchase x amount of gasoline at y cost. If the cost goes down, I think consumers would simply purchase z (some amount greater than x) for the same cost. In short: Cut the price (assuming the supply stays the same) and demand would increase.

All and all, cutting the gas tax is a bad idea. Obama was right to oppose it and so are you (I also thought it was a stupid idea) because it won’t decrease demand, it probably won’t decrease price and it takes money away from the highway fund at a time when America needs to invest more in our infrastructure.

[1] http://en.wikipedia.org/wiki/Image:Oil_Prices_Medium_Term.jpg

My plan prebates the proceeds of the tax back to Americans, so that those who use less gas actually make a profit on it. There’s still the pain of the economic transition, but my plan just bites that. McCain’s plan, by contrast, focuses on smoothing the economic transition. And Obama’s is, as my post implies, simply incoherent.

[1] http://www.tdaxp.com/archive/2005/04/01/a-modest-geogreen-gas-tax-proposal-5gal-gas.html

How would you contain the short term crisis? Remember, most of our intra-continental freight is by truck and $5 gasoline means $6 diesel. The ripple effect is easy to imagine.