HRC hands gleeful GOP gift Horse with gas tax holiday

Clinton's decision to endorse the gas tax holiday is an unmitigated disaster in the making.  The opportunity for gleeful Republicans to stem Democratic gains in the house and Senate and to improve GOP chances in November.

This is actually one of the reasons I have opposed Clinton since the beginning.  I was never a big fan of Bill to begin with.  In addition to the scandals, Bill had a tendency to support issues like NAFTA that garnered more support among Republicans than Democrats, and effectively undermined Democrats in 1992.  Their tendency to triangulate hurts Dems.  Personal ambition always superseded loyalty to party.

Why is it a brilliant campaign move?

First we should recognize that Clinton's proposal has a certain populist appeal that will gain her supporters.  From a strictly campaign perspective it's brilliant.  Of course her polling shows support for the idea.  Gas prices are really hurting Americans.  Some Americans are desperate enough to sell prized possession on Craig's list and Ebay, all to pay for gas and food.

We're also in the middle of a recession (Note: since it's not "technically" a recession as pointed out in the comments) really bad economic situation that feels like the beginning of a recession, so many Americans are already feeling the pinch.  High gas prices just adds to the pain.  I'm not saying the proposal will work, but I clearly understand its populist appeal.

Why is the GOP gleeful?

Unfortunately, this is a proposal I was hoping Dems would be able to kick down the road because I know it won't work.  By not voting on the issue, it somewhat restrains the benefits to Republicans.  They can complain about it, but wouldn't have actual votes on which to base their rhetoric.    However, Clinton is insisting we have a vote on it.  Personally, I think the leadership seriously needs to sit down with Clinton and explain why this is an electoral disaster.

First, Clinton will get her vote and it will likely pass both the house and Senate.  All Republicans will support the gas tax holiday and enough Blue dogs in the House will support it to make it happen.  It will also sail through the Senate with Lieberman, Clinton and every Republican's support plus the support of a few Blue dogs in the Senate.

I've already seen several diaries on the obvious tack Republicans will use: Democrats oppose cutting your taxes, evil commie Dems oppose helping you make ends meet, by refusing to help you on gas prices.  Most Dems will be inoculated from these attacks, but some in marginal districts will not and it will definitely help the GOP retain open seats.

Unfortunately, Clinton forgot the moral of the Goldilocks story.  In the original Grimm fairy tale, the bears ate Goldilocks.  Grimm was more right than wrong, because the GOP will eat Democrats if this gets acted on in either chamber.

You see it gets worse, because Clinton is opening a can of worms better fought with strong Democratic majorities than currently exists and a Democratic President.   Republicans won't be content with just a tax holiday.  Amendments will be proposed to eliminate the gas tax entirely.  How will Democrats vote on those Amendments and how can they be used in the election?

But that's not all, Republicans will offer an Amendments on ANWAR, proposing to open the refuge to drilling.  Though Democrats have always beaten back these proposals in the past, will they be able to oppose them now? After all, how can they stand in the way of economic relief to all them middle class and poor Americans?  Why would they want to hurt American's pocket books?  Awww, the GOP is on the side of the little people.  Democrats support the environment over your own standard of living.  We know the ads.

But it gets worse.  Republicans will also oppose the windfall profits tax.  Even if it fails in the House, it is likely to pass in the Senate, with Lieberman siding with Republicans, and forcing a reconciliation in the House-Senate mark-up.  Do you think Democrats will risk the gas tax holiday over the issue of a windfall profits tax?  No, they will cave and Goldilocks "just right" proposal will fail.

The fallout

The immediate effects:  Unfortunately, the immediate effects are all that Clinton cares about.  She will probably win IN by 10+ and make NC a tight race.

Effects in  November: Clinton will guarantee that the GOP retains seats for Coleman, Sunnunu, Smith and Collins.  After all they voted to help out the common voter!  Who cares about Iraq, they helped lower you gas prices.  She increases the likelihood of retaining Steven's seat and guarantees open Senate seats are retained in OK and ID.  They won't even be competitive.  She guarantees some at risk seats in the House remain Republican.  Senate gains are thus limited to VA, CO and possibly NM.  House pick-ups less than 10.

Why her proposals won't work?

1. ANWAR: We already know opening ANWAR won't help.  Even if the supply last more than six months, which is not likely and really not much help, the oil won't hit the market for months if not years, but it will provide the GOP with an extra talking point and an excuse to vote on ANWAR just before the election.

2. Though the windfall profits tax appeals to Democrats, it won't pass the Senate under the current partisan configuration in the Senate.  Bush would also weigh in pressuring Blue Dog Democrats and using the bully pulpit to expound on why the Windfall profits tax will increase gas prices.  Taxes bad, commie Democrats bad, GOP good!

3. Why the tax holiday will fail: simple economics.  Though lowering the price of the tax should lower the price it doesn't account for two simple facts. First, supply can't easily be increased.  Actually the proposal that makes the most short run sense is releasing the strategic reserves to add to the short run supply.  Otherwise, eliminating the gas tax won't help short run supply.  Decreasing the tax, however, is more likely to shift demand.

Even if gas companies were willing to share the tax relief entirely with Americans, the increase in demand will increase the price offsetting the benefit of the gas tax.

Furthermore, economic theory shows us that the cost of a tax tends to be shared proportionally by producers and consumers depending on their respective supply and demand curves as the graphs below demonstrate:

The difference between Pe and Pp is the part of the tax absorbed by the producer and the difference between Pc and Pe is the amount absorbed by the consumer. However, this graph presumes the supply of gas is more elastic than it is. Remember elastic supply implies the ability to increase supply more easily and leads to a flatter supply curves. The more elastic the supply, the more the tax burdens the consumer because the difference Pe-Pp is lower relative to the difference  Pc-Pe.

Conversely, the more inflexible the supply, i.e. the more inelastic or vertical the supply curve is, the more the tax is absorbed by the supplier. In the short run, oil is inelastic creating a more vertical supply curve and placing the burden of the tax primarily on the supplier.  Thus, removing the tax will primarily benefit the supplier. This is true, even if we assume suppliers will do what is right, and pass on the savings to consumers, which they won't. Shifts in demand will exacerbate the relationship increasing the price of gas.  

Of course, these are the reasons, economists, Bloomberg and a host of other rational legislators are calling this a dumb idea.  The average American only sees the pain of high gas prices.  Thus, a proposal that polls well will not help consumers, will likely help producers instead of consumers and will definitely help the GOP in November.

The GOP is dancing with glee.  Thanks for nothing Hillary.