Cutting Taxes One Minute; Raising Them the Next
CNN’s ‘American Morning’ says raising gas taxes might be a better move than cutting them.

By Amy Menefee
September 8, 2005

     Tax cuts have been the latest craze in gas price management, but CNN’s Miles O’Brien suggested on the September 8 “American Morning” that raising taxes might be the way to go.

     “I think there’s a lot of people who’d tell you long-term, raising the gas tax would be a good idea,” O’Brien said. Andy Serwer replied, “Oh yeah. That’s right. But it’s politically suicidal to suggest that, as we’ve seen.”

     Serwer was reporting the amount of federal and state taxes factored into consumers’ gasoline costs, noting that Georgia had temporarily cut its gas taxes. His report on “stubbornly high” gas prices was filled with economic malfeasance:

• It’s their money anyway: Serwer said other states were considering gas tax cuts. “But there’s some downside,” he said. “Number one, the states lose hundreds of millions of dollars of revenue, and number two, it may discourage conservation. On the other hand, maybe we all need a break.” The idea that tax relief is a loss to the government is the standard media approach – ignoring the fact that consumers get to keep more of their hard-earned money.
   
• Market manipulation: “… and number two, it may discourage conservation,” Serwer said of gas tax cuts. If lower prices did result from a gas tax cut, then yes, demand would increase. More affordable gas is not the way to “encourage” conservation. Of course, Serwer didn’t allow that the government might want to step aside and let the free market alone, rather than trying to encourage or discourage any economic behavior. There’s another problem he didn’t point out: government’s price-controlling behavior doesn’t always have predictable effects. As The Wall Street Journal explained in a September 7 editorial, temporary gas tax relief doesn’t mean consumers automatically benefit. If the savings are passed on to consumers, then more people will buy the lower-priced gas. That could lead to long lines or shortages in the areas with lower prices – not exactly a consumer’s dream. Or, energy companies could feasibly maintain prices as they are and pocket the difference, and consumers would never see the tax relief.
   
• Name your price: Serwer said “gas stations are basically able to charge whatever they want.” But that isn’t the case. Station owners may “want” to lower their prices, but they can’t afford to lose money on their product. And if they raise prices to a level where consumers refuse to buy, even if they “want” the price to be higher, it won’t stay there. Prices are determined by demand for gas and the supply available to meet that demand.