DMI Blog

Corinne Ramey

The gas tax vs. extended unemployment

An op-ed by DMI's director of research Amy Traub was in metro in Boston and New York on Tuesday. Amy writes,

"Barack Obama opposes immediate relief and lower taxes on fuel,” intones the narrator of a new GOP ad attacking the senator’s rejection of John McCain’s proposed suspension of the federal gasoline tax this summer. The ad says Obama is out of touch with ordinary Americans. It’s a clever piece of craftsmanship, feeding into the GOP’s carefully constructed image of Obama — a former community organizer raised by a single mother — as an elitist. But in reality, it’s the proposal for a gas tax “holiday” that’s out of touch. This plan would do little to help Americans. Meanwhile, policies that would boost the economy get little airtime.

Consider the proposal to extend benefits for unemployed workers, left on the cutting-room floor when Congress passed its stimulus bill. Thankfully, congressional leaders have promised to revive it, what’s likely to be far more effective at relieving our economic pain than a gas-tax “holiday.”

Suspending gas taxes is portrayed as helping everyone, but those who drive more or use inefficient vehicles would benefit most. Few predict the cut will reduce transportation costs enough to lower the price of goods, so infrequent drivers wouldn’t benefit. But folks who ride the subway shouldn’t feel left out: we’re only talking about 18.4 cents per gallon. For most drivers, the savings wouldn’t exceed $10 a month. With that kind of money, you can afford an extra gumball every day. Also, economists say the extra cash may not be passed on to the public.

Oil companies have no obligation to give the savings to consumers — they could simply raise prices. What’s more, if gas prices decline as a result of the tax cut, the dip would be short-lived: as soon as consumers began to buy more gas, prices would rise again. In the end, it’s oil companies whose profits might benefit from the $3 billion subsidy.

How about unemployment insurance? Extended benefits would go to far fewer people, but would target families and communities that have been most harmed by the economic downturn. They go exclusively to jobless workers who have exhausted their regular 26 weeks of benefits without finding another job — about 2 million people over the next year. And the money pays for more than gumballs: in New York, families can qualify for as much as $405 a week. Because these families are struggling to meet daily needs, they tend to spend the money immediately, boosting local businesses. For that reason, studies show that each dollar the government spends on unemployment insurance produces $1.73 of economic growth.

Everyone enjoys a holiday. But with Americans facing real economic pain it should take more than an appealing name to implement a policy. "

Corinne Ramey: Author Bio | Other Posts
Posted at 12:39 PM, May 29, 2008 in Economy
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