Politicians May Regret Gas Tax Issue

Congress may repeal the 4.3-cent federal gasoline tax, but it can’t repeal the law of the market and its simple truism: Prices rise and prices fall.

Nor can it alter the fact that Americans enjoy the lowest gasoline prices of any industrial nation and, after adjustment for inflation, one of the lowest prices at the pump in modern times.

“Gasoline is a bargain in America,” said Philip Verleger, energy consultant for Charles Rivers Associates. “After inflation, it is down about 15 percent since the gas lines of 1979” when Jimmy Carter was in the White House.

That alone makes many economic experts think America’s political leaders, including both the Republicans and President Clinton, are pandering to a public who largely has forgotten oil embargoes and gasoline lines and has gone back to its old energy-wasting ways. “Decadence” is the word that William Niskanen of the Cato Institute uses.

What is especially disconcerting to economists is the overreaction by the nation’s political leadership to what appears to be a temporary rise in prices.

In the next few months during the heavy summer driving season, the price of gasoline could rise regardless of what Congress does, posing a risk for Republicans who want to repeal the 4.3-cent gas tax in hopes of lowering the pump price.

Brookings Institution economist Barry Bosworth said the expected price rise easily could overwhelm the few pennies of tax relief.

“I think everybody is going to regret this,” Verleger said. “I think the Republicans will regret it, the Democrats will regret it for going along and the oil companies will regret it. The retail price ain’t coming down for a while.”

“It’s madness,” said Niskanen, economic adviser to former President Reagan and now chairman of the Cato Institute, a libertarian think tank. “I would not be surprised if prices did not peak until well into the summer.”

Clinton joined Senate Majority Leader Bob Dole, R-Kan., in support of repeal of the gas tax on Wednesday - but only if Congress agrees to pass it and another bill raising the minimum wage without unpopular amendments that would invite vetoes.

The maneuvering only underscores the political nature of the issue, which arose when gasoline prices surged this spring.

Yet, the price at the pump - not the amount of tax paid - is regarded as the actual gauge of the political temperature of the American motorist. Most drivers are not aware of the taxes they pay when they fill up.

So, if prices rise in response to market forces, repeal of the gas tax would not necessarily provide much political benefit.

“This action is just going to enhance voter cynicism,” Verleger said.