Imagine yourself in a Hollywood film producer’s office, sipping Hungarian bottled water and listening to someone in an extravagantly bad suit saying, “It’s like ‘Apocalypto’ – but at a beach house, with thirty-something ‘Friends” characters.”
The presentation of a film or television idea to those who have the wherewithal to produce it is known as a pitch, and there is an accepted formula (brevity + simile + hook = success). The television side of the business adds a cyclicality to the process, so there is, in effect, a pitching season that allows time for decisions to be made in time for the fall schedule.
In Washington, D.C., there is a pitching season, too and while there aren’t as many bad suits there are definite similarities to the movie industry version. Whenever Congress shifts its center of political persuasion, one of the side effects is a Hollywood-like atmosphere of pitches. Organizations, lobbyists, economists, policy wonks and concept-mongers of all stripes set to work trying to sell their ideas to the newly empowered party, to the media and to the public.
One of the ideas currently being pitched to us would effect fundamental changes in how our economy works.
The idea is straightforward: levy a new, whopper tax on gasoline to discourage its use.
It’s not exactly a new idea – another similarity to a Hollywood pitch – but it is now being repackaged for the new Congressional decision-makers.
Like archeologists, we can fix the date when the whopper tax on gasoline idea went legitimate: 1973, the year of the OPEC oil crisis. The belief that both cars and gas were too cheap had long been a tenet of the environmentalist movement, but when the Organization of Petroleum Exporting Countries turned the spigot off our dependency was painfully visible, and the need to do something about it acquired credibility.
To those who believed that the first thing to do was to tax the living daylights out of gasoline, making it expensive and less used, the following decades were mighty frustrating. In the end the marketplace shook off the oil price increases and dismissed most alternative energy projects as irrelevant. The gasoline taxes that were piled on were used to build and maintain roads … so that we would buy and use more gas.
Now, for the benefit of the new Congress, the whopper tax has been reformatted so that, on the surface at least, it almost makes a kind of economic sense. The new version would establish a federal tax that would be activated only if gasoline drops below $4.00 per gallon. (The national average price is now in the $2.25 range for regular unleaded, so that would mean tacking on a $1.75 tax.)
This version of the whopper tax would be revenue neutral by returning the tax revenues to consumers and businesses through reductions in payroll taxes. Essentially, it is a price stabilizing scheme that would peg the minimum price of gasoline in the U.S. at $4 a gallon. Gas at the pump could go higher, but not lower.
A number of prominent economists, including N. Gregory Mankiw and Nobel prize winner Gary Becker, have signed on to the whopper tax idea. Despite their marquee value, though, there are good reasons why any experienced Hollywood producer, or economic policy maker, might look at this pitch with some skepticism.
Efforts to peg prices in this global market economy have to be viewed as high risk. There is certainly no successful model to pattern the whopper tax after. And the whopper tax pitch pointedly makes no mention of the expected behavior of either U.S. producers or OPEC crude suppliers. How will they respond to the whopper tax?
Think about it. How would you as a producer react to a situation where the price can go up, but not down – so that when you lower prices, sales do not increase? And OPEC, of course, seeing that we are willing to pay $4 a gallon, might be tempted to say, “Would you believe $5?”
Most significantly, the idea is also internally inconsistent. If motorists get all the money back that they spent because of artificially inflated gas prices, how will that discourage gasoline use?
In some respects it appears that there is more wishful thinking than rigorous economic analysis behind the support for the whopper tax on gasoline. We all know that we should reduce our dependence on foreign oil, just as Hollywood knows that it has to reduce its dependence on sequels. But just as it won’t help Hollywood to back a turkey of a movie just because it isn’t a sequel, it won’t help us to back a turkey of an energy plan that we know will not work. Life is too short for bad movies and bad economics.
James McCusker is a Bothell economist, educator and consultant. He also writes “Business 101” monthly for the Snohomish County Business Journal.
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