9/11/08 Gas tax ‘holiday’?  How about a high-priced oil ‘permanent vacation’?

By Peter Forman
Published: September 11, 2008
New York—Politicians kick around the idea of a gas-tax holiday.  Americans actually deserve a permanent vacation from the "taxes" they pay to the likes of Saudi Arabia, Russia, and Iran.  
  
To be precise about it, a tax is a surcharge paid that adds no value directly to the product received and which has the effect of increasing the cost, thereby reducing demand, and hurting the consumer and the supplier.  Of course, a tax paid to one's own government often returns (at least in part) in some form of value to the tax payer.
But taxes paid to other governments have no value to the payer and only damage the consumer.  Our oil purchases represent just such a tax.
It makes no difference if the high price of oil is a product of an artificial control by OPEC (as many believe) or of out-of-control global demand for oil.
 
A gallon of oil at $100/barrel drives as far as a gallon of oil at $12/barrel (the price ten years ago).
There are no productivity gains from high-priced oil; it simply acts as a tax on the whole economy. 
 
It drags down our economy in both micro and macro ways. 
These extra costs simultaneously create inflationary and recessionary pressures-- pushing us towards, but necessarily into, stagflation.
 
While the American economy has been unbelievably resilient, especially in the face of multiple economic challenges, one thing is for sure-- high-priced oil makes all economic issues worse.

 

1) Inflation

 

— High-priced oil increases the price of almost all goods and services by raising the cost of their transportation, packaging, and so forth.  Everything from food to computer chips has been heavily dependent on low cost oil.[i], [ii]

 

o Household budgets

o Freight deliveries and commuting

o Jet aviation

o America is an economy that has been built on cheap oil, and those days are over.

 

— Economists predict that by year's end the U.S. inflation rate could rise above 6 percent, and potentially much higher if there were a major spike in oil prices.[iii]  

 

2) Reinvestment Loss and the Transfer of Wealth

 

— A dollar spent at the coffee shop recycles domestically (as it is spent on salaries, food, rent, etc...) far more than does a dollar sent directly to an already cash-rich oil regime.  That domestic dollar, which was spent on rent, food, and salaries, is then re-spent disproportionately domestically-- continuing the cycle and benefit thereof.

— These transfers of wealth are relocating global economic strongholds from the West to the energy-producing nations.  

 

3) Job Loss

 

— The unemployment rate has risen to 6.1 percent, its highest level in five years, driven in large part by high-priced energy.[iv]  From auto manufacturers to home builders, businesses are shedding employees.

— Loss of jobs and loss of disposable income leads, of course, to more loss of jobs and more loss of disposable income.  

 

4) Lower Gross Domestic Product (GDP)

 

— Higher priced oil leads to cuts in growth as measured by the GDP (Gross Domestic Product).[v]   It's simple: if Americans feel less confident in the stability of future oil prices, American businesses will be less willing to invest in all sectors of our economy.  If we then hand over our remaining American dollars to foreign regimes, we are losing the power of that money to recycle from person to person in our own economy. 

— Almost all recessions in the past half-century have gone hand-in-hand with increased oil prices. 

 

We are now reliving the depressive effects of stagflation which we last experienced after the oil embargo of the United States by OPEC in the early 1970s.  While we are not in an out-of-control inflationary/recessionary period, we are clearly worse off than we would be with low-priced oil.
 
But even if domestically generated energy were as expensive as imported energy, at least we would be recycling those dollars, creating jobs here, and diminishing our national security risks.
 
Demand that our legislators create a high-priced oil permanent vacation; demand that we move beyond oil.

 

MoveBeyondOil.org
The bi-partisan, not-for-profit source for energy independence information and solutions.

 

Footnotes

[i] "Oil's Surge Hurts Outlook for Stocks and Economy," Jeff Cox, CNBC.com, May 21, 2008 

ii] "Oil and Food Prices Add to Inflation Pressures," Michael Grynbaum, New York Times, June 14, 2008

[iii] "'70s Flashback Would Be Bad Trip for Economy," Dean Calbreath, San Diego Union-Tribune, July 16, 2008 

[iv] "Jobless Rate Jumps to 6.1 percent, Adds Economic Troubles," Seattle Times, September 6, 2008

[v] "Economist: Oil Prices Hurt GDP," bizjournals, September 5, 2008

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