The fuel price-tax analogy vanishes when prices plunge

Sept. 18, 2015
If high fuel prices are like a tax increase, shouldn’t low fuel prices be receiving gushes of American welcome?

If high fuel prices are like a tax increase, shouldn’t low fuel prices be receiving gushes of American welcome?

The fuel price-tax analogy is a time-honored bipartisan expedient.

Here’s US President Barack Obama in an April 2012 speech in which he urged Congress to pass legislation addressing mischief by energy traders: “So when gas prices go up, it’s like an additional tax that comes right out of your pocket.”

Five years earlier, Republican House Speaker John Boehner opposed Democratic price-gouging legislation but asserted his sympathy this way: “Skyrocketing gasoline and home-energy prices hit the family budget like unforeseen tax increases.”

Since mid-2014, crude oil has lost half its value and pulled down prices of gasoline and other products. So where’s talk about a tax decrease?

Apparently, the reverse analogy serves no political purpose.

This is especially so now as Pope Francis visits the US to lecture morally challenged capitalists on the joys of carbon-free energy, the economic disadvantages of which become harder than ever to ignore when fossil energy’s cheap.

That no one is likening the oil price plunge to a cash-dispensing tax cut is refreshing. The analogy doesn’t work.

Markets raise and lower prices. Governments raise and lower taxes. When fuel prices reach painful levels, people use less fuel. When taxes do likewise, people have to change governments—where and when they can.

What’s more, the economic boost that might be expected from a tax cut, if the fuel-price slump really acted like one, hasn’t materialized.

On Sept. 17, the Federal Reserve’s Federal Open Market Committee said it wouldn’t lift interest rates partly because US economic expansion remains “moderate.”

The argument might be made that expansion would be even slower if the fuel-price slump were not supporting it with a de facto tax cut.

But the FOMC has other ideas. Low prices of energy and imports are hampering expansion, it said, by keeping inflation below the ideal rate.

That observation probably will make some politicians want to raise taxes.

(From the subscription area of, posted Sept. 18, 2015; author’s e-mail: [email protected])