Sunday, April 20, 2008

McCain's Plan

The two biggest challenges currently facing America are: our massive foreign account deficit and our dependency on foreign oil.

Sadly, McCain's economic stimulus package flunks the common sense test. The key elements of the program is a tax vacation where we temporarily nix the federal gas tax.

This program flunks common sense because it has the government widening our account deficits to facilitate our consumption of oil.

It is a bit like the coke addict's one hit for the road plan.

Suspending additions to the strategic oil reserves makes sense. If our focus is on replacing oil with alternative fuels, then the reserve would not be more valuable than the present price of oil which is likely to fall in the near future.

The gas tax is a fixed dollar amount. It is not a percent. One can actually argue that the Federal Gas Tax is decreasing because of inflation and the weakening dollar.

The current increase in oil prices is due to demand. Costs will continue to rise until it hits that point where people start conserving, which apparently hasn't happened yet.

Quite frankly, I think McCain would have done better to promise a future tax increase. The promise that prices will continue to be high will create an incentive for investments in alternative energy.

I've stated in a previous posts that, if we really want an economic stimulous, the stimulous should be aimed at reducing fossil fuel dependencies.

For that matter, forward thinking politicians would request that we spend the tax rebate checks in the mail on conservation. We should use the money for a tune up, insulation, a new bike, pellet stove, or for reducing our debt reduction.

Any tax decreases should be aimed at reducing payroll taxes. Lowering taxes on labor while increasing taxes on resource consumption would create a positive force where we replaced energy intensive applications with labor intesnsive applications.

Wise free marketeers think progressively when making tax cuts. That is, we should cut taxes on workers first, while saving those on resources for last.

1 comment:

Scott Hinrichs said...

I oddly find myself somewhat agreeing with Ralph Nader on taxation. We should impose low (or no) taxes on activities we want to encourage, like working and saving. And we should impose higher taxes on activities we want to discourage.

The only problem with that is that high taxes don't always curtail activities as hoped. Although luxury taxes hurt the yacht building business in Maine, people continue to smoke even with sky high tobacco taxes. In Europe they have found that extremely high fuel taxes do not alter people's transportation choices. For example, people only shift to mass transit when congestion makes it more convenient than driving, regardless of how high or low the price of gasoline happens to be.