Do Not Treat Consumers Like Piñatas

Former Governor Ed Rendell doesn’t want the oil price decrease wasted on consumers.  He wants a quick hike in the federal gas tax to capture those funds before consumers get used to paying less and using the money to pay family bills or out-of-pocket medical deductibles. It is insulting to pretend that consumers are too slow-witted to feel that extra $50 in their pocket each month.

Some politicians have cagily said the gasoline price drop is “like a tax cut.”  That cynical framing suggests tax as a legitimate simile, when of course it is not.  As justification for the proposed tax hike, Rendell offers “roads, bridges and construction across the U.S.”  That sounds suspiciously like the “shovel ready” phantoms that taxpayers were forced to fund with $800 billion in stimulus money as proposed in December 2008. The sentiment was compelling, but “readiness” was a myth and, six years later, stimulus money is still oozing out for low-tech “infrastructure” projects such as shoveling horse manure.

West Texas Intermediate crude oil is priced at $61.22 per barrel in early December 2014.  Morgan Stanley has forecast that the price per barrel will drop to a low of $43 in the second quarter of 2015, and   Saudi Arabia sees the price then “stabilizing” at $60 over the next few years.  Oil prices will change up and down as they did crossing the $60 per barrel mark 8 times since 2000 as they floated between $20 and $140 per barrel.

If perversely, a crude oil tax hike were to gain traction, enactment would deprive consumers of the dollar per gallon that they need today.  But they would also be reminded of the burden over and over as oil prices fluctuate. They would fondly remember the good old days before Rendell’s took their $1 per gallon.

In a vague way, Rendell is right.  Some infrastructure projects have genuine merit.  There are bridges, airports and roads that need refurbishing.  On the other hand, some projects are just “make-work” and many federal projects are union-payback where politicians insist the contract must be granted to a union shop.  Union-only contracts cost 20% more than when the project also permits bidding from a ”merit” (non-union) shop.

Some infrastructure projects could be funded when enough money can be rescued from fraud or botched federal operations.  For example, the Treasury Department’s Inspector General says the IRS allows $14.5 billion each year in fraudulent claims for Earned Income Tax Credits and $6 billion in bogus child tax credits.  The IRS confronts $1 billion each year in fraudulent claims from prisoners who file 137,000 phony tax returns.  To its credit, the IRS thwarts all but $70 million of prisoner attempts at fraud.

Consumers admire a government that enforces the law and curtails fraud instead of pro-government politicians who reflexively prescribe higher tax rates.  It is shameful to pounce on savings that gasoline consumers might enjoy for a while.  That said, an extra $20 billion per year harvested from known fraud could fund a lot of worthwhile infrastructure projects, particularly if carefully spent.

Alan Daley is a retired businessman who writes for The American Consumer Institute Center for Citizen Research

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