SUSPEND THE GAS TAX

By Dick Morris on March 11, 2011

Published on TheHill.com on March 8, 2011

Republicans should demand the immediate suspension of the 18.4-cent federal gasoline tax and, at the state level throughout the nation, the suspension of the additional 30-cent average local tax. When gas prices drop again — likely not for several years — the taxes should resume.

All told, federal, state and local excise and sales taxes account for almost 50 cents of the price of gasoline at the pump. Republicans should seize on the current crisis to promote a smaller-government solution: suspension of the tax.

There is no better way to force Obama and the Democrats to battle for higher taxes than to raise the issue now and push it home. As gas prices rise to $4, $5 and possibly $6 a gallon, their intransigence on the issue will work massively to their political discomfort and disadvantage.

Obama will likely release oil from the Strategic Petroleum Reserve, but the extra oil will be a drop in the bucket (pardon the pun) and a short-lived remedy. With over 90 million barrels a day of global oil production, the release of even a million extra barrels a day will have only a marginal and temporary impact.

The reserve, which now stands at 727 million barrels, has only been tapped twice, once for 17 million barrels by President George H.W. Bush in 1991 at the time of the Gulf War and again in 2005 by George W. Bush during Hurricane Katrina for 11 million.

With American oil consumption running upward of 17 million barrels a day, tapping the reserve again is, at best, a limited remedy.

But suspending the gas tax and encouraging states to do so would be a more dramatic and effective solution.

Oil prices are going to rise ever further as the instability spreads throughout the Middle East. The Saudi monarchy is clearly in danger. The king is 86 years old and in very poor health. He recently returned after several months of treatment abroad. The two heirs are each over 80 and both also ill.

The Saudis produce 9 million barrels a day and have the capacity for 3 million more. If their monarchy succumbs to the spreading movement for popular government, the disruption will send massive shockwaves throughout the world.

The oil increase comes at the same time food prices are soaring. Wheat and corn have doubled and soybeans are up 50 percent. Health insurance premiums are rising by an average of almost 20 percent due to ObamaCare. And interest rates are likely to go up as the Fed brings its QE-2 printing of money to a close.

These increases are going to trigger significant inflation at a time when consumers can’t and won’t pay higher prices. But the fixed costs will remain and will force prices ever higher. The resulting stagflation will do much to imperil Obama’s reelection hopes.

Compare the increase in gas prices with the 2 percent reduction in tax withholding Obama is heralding as an economic stimulant. The cut in withholding, negotiated as part of the extension of the Bush tax cuts this past December, will save the average American family (median income of $50,000) about $1,000 a year.

The average American, by contrast, consumes 500 gallons of gasoline annually. A one-dollar increase in gas prices would eat up half of the Obama tax break. When you add in the other inflationary pressures, the economic stimulus of the cut in withholding will vanish.

By focusing on the gasoline tax, Republicans can pose a direct challenge to stagflation and Obama is sure to rise to the bait of refusing to go along. He will speak about the impact of cutting road construction on jobs, but America has long ago realized that increased government spending and taxing is not the way to create jobs.

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Please leave a comment below - I would love to hear what you think! Thanks, Dick

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