Today's Post tackles yesterday's topic:
A growing chorus—including a top congressional Democrat—labeled Sen. Hillary Rodham Clinton's proposal for suspending the federal gasoline tax ineffective and shortsighted yesterday, even as she continued to paint Sen. Barack Obama as insensitive to drivers' woes for not endorsing the plan.
The initimble Prof Mankiw chimes in:
Harvard professor N. Gregory Mankiw, who has written a best-selling textbook on economics, said what he teaches is different from what Clinton and McCain are saying about gas taxes. "What you learn in Economics 101 is that if producers can't produce much more, when you cut the tax on that good the tax is kept by the suppliers and is not passed on to consumers," he said.
Over the short-run—and particularly over the summer, with refineries already at maximum capacity—the quantity supplied is fixed. Cutting the tax will cause consumers to simply bid the price back up to its original value, allowing demand to meet the fixed supply.
Here is a policy proposal: Ditch the gas tax and replace it with a broader tax on all carbon. Offset the carbon tax with a revenue-neutral reduction in marginal tax rates. Also—for good measure—abolish all farm subsidies.
