Say What! Hillary and Economics---Free Gas or Gasbag?

By now, I am sure that Hillary Clinton's "scheme" to save us poor consumers at the pump from the avarice of the big, bad oil companies has been thoroughly sliced and diced on the political blogs. I won't go into a detailed debunking of Hillary's plan, other than to state the obvious: Hillary is full of it!

The basics of her "scheme" are that she proposes to suspend the federal tax on gasoline so that we consumers won't have to pay it at the pump and then have the big oil companies pay the tax themselves. That should fatten our wallets, give us a chance to fill up the tank, and to pay off the entire national debt at the same time, right? Wrong!

What Hillary fails to understand about economics (her judgment being clouded by the fog of politics), and the way businesses do business, is that a cost incurred by a business is usually passed along to consumers in the price they pay for the good or service that the business is providing! The federal gasoline tax is not a cost that Big Oil is incurring and therefore adding on to each gallon of gas because Big Oil is not currently paying the tax as a cost to its business! It is big, bad federal government which is adding that cost to the price of a gallon of gasoline, not big, bad oil companies!

So, what exactly will happen to the price of a gallon of gasoline at the pump if the payment of the tax is shifted off the consumer and onto Big Oil? The price will stay the same! That is because Big Oil will add the cost of the tax it is paying into the price it charges for the delivery of a gallon of gasoline to the wholesalers, who will in turn factor that cost into their retail price at the pump. And who will end up paying the cost of the tax reflected in the price? The consumer!

Tom Firey, the author of the article linked below, sums up the effect of Hillary's illogic nicely when he writes:

"Because she intends for the windfall profits tax to generate the same revenue as the gas tax, the windfall profits tax will have the same effect on gasoline supply, demand, and price as the current gas tax. The only difference is that the gas tax is transparent to consumers while the windfall profits tax is not. Voilà — the gas tax seems to disappear, but gas prices stay the same and the government still gets its money."

But, Alas! I mistake! For, not only will the price of a gallon of gas remain the same thanks be to the federal government for adding to its increase by imposing the federal gasoline tax; but through its inflationary policies, the federal government will assure us that the price of gasoline will continue to rise as the purchasing power of our devaluing currency continues to fall!

What Hillary is proposing is a shell game, smoke and mirrors! And in the end, as with all shell games, it is the sucker (consumer) and not the con-artist (politician) who gets taken!

Anyway, here is Mr. Firey's complete article on the subject, with a nice analysis of the factors influencing the price of gasoline. Please read it here at Cato Institute.