Jason Furman, an economist who worked under Barack Obama, stated Tuesday that the proposed gas tax holiday by President Biden would be a benefit to oil companies and not consumers.
Furman cited the economic theory of price incidence to explain that the government can’t “decide who gets tax cuts” as supply and demand are the determining factors. Furman stated:
It is not worth the effort to give up on February’s gas tax holiday. Because of the tightening of refineries, supply is almost non-existent. The majority of the 18.4 percent reduction would go to industry, with only a few cents going to consumers. This is the standard price incidence theory in economics. The government can’t decide who gets the tax cuts. It splits the benefit based on responsiveness to supply and demand.
Furman said that the high oil demand means that consumers would be able to afford more gasoline.
The tax cut will most likely go to suppliers if supply is not responsive to price (the current situation). It is intuitive that consumers would be more inclined to consume more than can be produced if the tax cut was passed on to them. This would drive up prices. The fact that demand does indeed respond to prices means that consumers have less to gain from a gas tax holiday.
Furman condemns Biden’s plan as the global head of commodities at Goldman Sachs Jeff Currie, on Thursday, slammed Biden for his war on American energy and for favoring green energy over long-term fossil fuel investments.
Currie stated that the soaring prices of energy are due to U.S. investments in the fossil fuel sector. Currie stated that there is only one solution to this problem: investment. He suggested that large amounts of capital should be injected into the space in order to debottleneck the sector.
Currie asked Currie, “What is the reason for the lack capital investment?” Currie identified ESG (environmental, social and corporate governance) as the reasons why the U.S. is not prepared for shocks in energy prices.
During his presidential campaign, Biden pledged to wage war against American oil. Biden, as president, has kept his word. Biden increased the costs of oil drilling through private and public financing, stopped drilling on public lands and cancelled the Keystone pipeline.
Gas prices have shot up to new records under Biden’s administration and have more than doubled since the departure of President Donald Trump. According to the Energy Information Administration, (EIA), Americans in 2022 will pay $450 less for gas than last year if inflation is adjusted.