Tuesday, April 29, 2008

Clinton, Obama, Promise to Raise Gas Prices

If you are not paying enough for gas now, you will be if Hillary Clinton or Obama get elected. People are clearly tired of outrageous gas prices and are looking for relief -- and solutions -- from elected officials. They don't appear to be getting it from the Democrats.
Senator Clinton has a proposal that would provide a "tax holiday" that would lower costs around 20 cents a gallon, but the other tier of her program will devastate these savings -- a windfall profit tax for oil companies. The tax holiday is fine and I have proposed such on the radio and in this blog, but it should only be a small part in helping relieve our energy crisis.

Obama is worse, he wants nothing to do with a tax holiday and is asking for a windfall profit tax like Clinton's. How big of a tax? 50% once an oil company reaches a certain level of revenues. How will this lead to a tax increase? Such also leads to shortages and long lines like we experienced in the 1970s. You remember those "good old days." It is really that simple.

Prohibitive windfall profit taxes give businesses an incentive to stay away from that magic number, what ever it is and it actually leads to a decrease in production. Lower production, leads to higher demand, which in turn leads to higher prices. It is simple economics 101.

The heart of John McCain's program is tax holiday as well, which is fairly benign in a negative arena and should provide some modest relief. The good thing about McCain's proposal is that it won't undermine production and won't fuel higher profits or shortages.
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Kevin Price is Host of the Houston Business Show (M-F at 11 AM on CNN 650) and Publisher of the Houston Business Review. Hear the show live and online at HoustonBusinessShow.com. Visit the archive of past shows here.

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Anonymous James from DC said...

I think most candidates act like businesses are non-profit, or even anti-profit organizations. They don't understand simple self interest.

9:28 PM  
Anonymous Anonymous said...

I don't understand. The oil companies are making huge profits, why would they need to raise prices?

5:46 PM  

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