Sign in to wowOwow

Enter the email address that you used when registering at wowOwow.
The password field is case sensitive. Click here if you have forgotten your password.

Please register for wowOwow

Newsletter subscriptions
Sign up to receive wowOwow's weekly newsletter and get our best picks delivered right to your inbox. Our newsletter content is hand-picked by the wowOwow editorial team and provides the top features, news, and commentary from our site. Subscribing to our newsletter is free and safe. We will never share your email or other information with a third-party without your direct consent.
By registering, you indicate that you have read and agree
with our privacy policy and terms of service.

Wall Street Weekly | 05/22/2009 10:53 am

Markets and Obama Face Reality Check, by Liz Peek

Why slapping a gas tax may be a better option than regulating the auto industry …

By Liz Peek

Bears, Bulls, Chickens and Pigs: wOw’s Wall Street Weekly with Liz Peek (Week of 5/18) 

Editor’s Note: Liz Peek is a financial columnist and the author of wOw’s SHEconomics.

Happy Memorial Day! As you throw the three kids, the dog, the suitcases and picnic basket into the station wagon to go see Mom, savor the moment. All too soon your beloved and spacious gas hog will be redesigned to accommodate President Obama’s new fuel-efficiency requirements, a program that the Financial Times calls "deeply flawed" and I call stupid. In New York we now have some fuel-efficient taxi cabs that are literally so small that my son, who is well over six feet tall, doesn’t fit. When four of us travel together, we sometimes have to take two taxis; how does that save gasoline?

I am all for clean air. I am also desperate to see the U.S. cut back on imported oil. I am not for the government micromanaging the auto industry and dictating the kinds of cars GM and Chrysler will make or legislating fuel efficiency. The government does not run anything well, and heaven knows our automakers have enough problems without spending fortunes gearing up to meet harsh new requirements. The more the government ladles on new poll-pleasing rules and standards, the longer the U.S. car business will require taxpayer funding. Guaranteed.

All too soon your beloved and spacious gas hog will be redesigned to accommodate President Obama's new fuel-efficiency requirements ...

If the Obama administration wants to encourage conservation, slap a tax on gasoline: that simple measure will bring about a market-driven response. A gas tax has been at the heart of Europeans’ love affair with small cars for decades. A higher gas tax will also encourage people to drive fewer miles — something not at all affected by fiddling with fuel standards. If gasoline costs more, as it did last year, Americans will use public transportation, or carpool, or adopt other measures to use less. And, they will require more fuel-efficient cars from Detroit.

Here’s the problem. The Obama administration doesn’t want to singe its popularity by calling for higher taxes on anybody but the wealthy. Asking all drivers to pay a gas tax would be controversial, though anyone with an analytical bone in their body will see that the fuel measures will inevitably cost everyone. Also, Team Obama knows full well that taxes are going to have to increase, and they want to push through as much of their agenda as possible before facing that dreadful day.

Why will taxes rise? As I pointed out last week, the U.S.’s financial picture is not a pretty one. I mentioned the horrific possibility of a credit downgrade for the U.S. Those watching the markets yesterday saw the United Kingdom come face to face with that possibility, as Standard & Poor’s put the debt of that great nation on "negative watch," meaning it could lose its triple-A rating within a couple of years if its prospects don’t improve. The reason? The net public debt of Great Britain is expected to reach 100% of income and remain at that level. As readers will recall, I mentioned several weeks ago that our debt is forecast by the nonpartisan Congressional Budget Office to climb steadily, reaching 82% of GDP by 2019. Fed Chair Ben Bernanke must have felt a chill down his spine.

111 Reader Comments (so far…) Sign In or Register to comment

Maggie W

This is such typical American attitude of wanting it all… plentiful and cheap gasoline and free cocktails in coach and winning pro teams.  

They also want clean air,  less global warming, and less dependence on foreign oil. Can’t have it all.  Had the previous administration gone to bat for tighter fuel efficiency standards, we’d all be in better shape today, especially the auto industry. 

(F. Harrop had a good column about this) 

 

By Maggie W on 05/22/2009 11:23 am
Martha Vinyard

I am looking forward to the day that only us rich people can drive.

I think poor people should ride public transportation, bicycles or plastic chairs bolted to lawn-mower chassis.

 I think raising federal gas taxes a five dollars per gallon should do it.

 Because all those poor people won’t be on the road at the same time as me during my solo commute in my Chevy Suburban, I could build a new house farther away from the city and all those little solar cars and those pesky pedaling poor.

 Oh yeah, Let’s raise cigarette taxes a few dollars a pack too.

 Poor people who smoke while bicycling look very tacky.

By Martha Vinyard on 05/22/2009 1:53 pm
HA BIBI
LOL, Tooo Funny!
By HA BIBI on 05/22/2009 7:05 pm
Lady Gator
Martha — This is priceless!   LOL
By Lady Gator on 05/23/2009 5:47 pm
Liz Peek
Nice reposte - but totally off the mark. 1) We are the only western country without a steep gas tax- do you contend that socialist Europe has adopted a regressive tax? i don’t think so. 2) Do you think that the majority of gas-guzzling SUVs etc are driven by poor people? I don’t think so. 3) Do you think car prices going up by $1300-$4500 (the range being discussed) hurts poor people or rich people more? 4) Cutting down on gas imports would ultimately lower heating oil prices as well- bigger deal to rich or poor do you think? 5) will continuing bail-outs of car companies hurt rich or poor more? Think of alternative uses of federal funds - like helping poor people pay off their mortgages, food stamps, extended unemployment etc.  Just asking - Liz
By Liz Peek on 05/24/2009 10:31 am
Victoria J
So Liz…Obama is stupid and Liz knows best?  To bad, you didn’t elbow Sarah out of way and deliver McCain a win? Are you the Liz Peek, I spy on NYSD…Liz Peek of the Republican kind?  Just asking- As for gas guzzlers being driven by poor people, no, but they are being driven by families where both the mother and the father are working and if one loses his or her job, the family will have problems..so the Dems are not doing a thing with food stamps, extended unemployment and assistance with mortgages and what universe do you live on Liz.?..oops I forgot the New York Social Diary universe…
By Victoria J on 05/24/2009 6:19 pm
Marjorie C.

Victoria:  Liz Peek of the Republican kind? 

Attack the opinion, not the person giving the opinion.  Give us your take on why high gas taxes will benefit us all.  I understand emissions and global warming and polluted air, but let’s not create a desperate situation where people are burning their furniture to keep warm, where people can’t afford to get to their jobs, where Americans become so frustrated, they are willing to pull their government down.     

By Marjorie C. on 05/25/2009 5:12 am
Victoria J

This another pot shot at Obama’s war being waged against the greed of Wall Street. Did he step on your toes Liz?…refuse bonuses to your buddies? I am always skeptical  when rich folks start being magnanimous (no write off) and looking out for poor folks..what’s in it for the rich folks?…cause they sure aren’t interested til the stuff hits the fan…By the way some of Bernie’s victims could be examples of rich folks who probably NOW would feel differently about your 5 examples than say YOU!

By Victoria J on 05/24/2009 6:34 pm
MK P
Do you really think that "poor people" buy NEW cars?   Poor people buy USED GAS GUZZLERS.
By MK P on 05/25/2009 8:45 am
James the Game

To avoid wide fluctuations in taxes with the volatile crude commodity, it might be better to raise the price of fuel to a certain level, and then index it for inflation. But, the issue may be moot in the not too distant future. When electric plug-in and hybrid vehicles flood the market, taxes will have to be calculated another way in order to raise sufficient revenues to fund road and bridge maintenance. Presumably, these lighter, alternative vehicles will exact less damage to the roadways, but you’ll still have the diesel-run semi-trucks.

The only way raising CAFE standards years ago would’ve helped the auto industry would’ve been if the government stepped in to assist the Detroit automakers with the transition. That’s been the prime problem right there, just as it has been with our ravaged manufacturing base: we simply have not been playing on a level field with other countries.

Other nations not only have helped their automotive industries for years, but have been paying slave-labor wages to run both their auto and manufacturing industries. That’s why I applaud Obama’s plan to tax American companies that want to move operations overseas. The companies whine that’s unfair, they’ll be hit with both domestic and foreign taxes. But we can no longer afford to reward U.S. companies for moving jobs overseas.

 

By James the Game on 05/22/2009 5:25 pm
Bella Mia

I heard liberal Eleanor Clift say that the new American Dream is a small apartment near public transportation.  The conservative on the program couldn’t stop laughing.  What was Eleanor thinking?  

 These smaller cars, designed by the government overseers, (like car czar Rattner, who has no automotive background and is building his own "green" 15,000sq ft. mansion) are death traps, and projections already exists of how many thousands more will die because of them - the government doesn’t care. 

 The Obama fuel efficiency plan may also contribute to a significant increase in highway deaths as vehicles are required to quickly meet the new CAFE standard and will likely become lighter in weight as a result. According to a study completed in 2001 by the National Research Council (NRC), the last major increase in CAFE standards, mandated by the Energy Policy and Conservation Act of 1975, required about a 50% increase in fuel economy (to 27.5 mpg by model year 1985 from an average of 18 mpg in 1978). The NRC study concluded that the subsequent downsizing and down-weighting of vehicles, "while resulting in significant fuel savings, also resulted in a safety penalty." Specifically, the NRC estimated that in 1993 there were between 1,300 and 2,600 motor vehicle crash deaths that would not have occurred if cars were as heavy as they were in 1976.

http://online.wsj.com/article/SB124294901851445311.html 

 And for those who are critical thinkers - it isn’t too hard to figure out that even though the cars are small they will cost more - and therefore people will buy fewer of them - hanging on to older clunkers - creating EVEN MORE air pollution.  Unintended consequences.

 The Obama plan could slow this progress. An economic phenomenon called "price elasticity of demand" is well established when it comes to automobile purchases. In other words, if you raise the price of new cars, people will buy fewer of them or, at a minimum, put off the purchase for a year or so while they drive the old clunker for a few thousand more miles. And fewer new cars means more pollution, which can cause significant health problems. Yet environmentalists and the press have ignored this issue, so as not to inject a note of complexity or doubt into the chorus of glee that greeted the president’s attack on greenhouse-gas emissions.
http://online.wsj.com/article/SB124294901851445311.html 

 

Just like other government boondoggles like low flush toilets, and the new poisionous mercury lightbulbs - the government will make a mess of the car business too.  There are definite reasons that the government always fails in business.  

1) It is a monoploy and is like a referee joining one of the teams and changing rules mid-game.  Ask the car dealers who are having their businesses given to their competitors - it’s shocking, and terrifying.

2) Decision politicians makes are political - not economic or with the best interests of the consumer in mind.  

And more bad news…..Democrats are making massive changes to drilling regulations and will be charging oil companies much more for drilling rights….and the consumer will be hurt AGAIN.

 Under a House Democrat-crafted bill described as a “sweeping” reform of federal drilling rules, oil and natural-gas companies would pay more to drill on federal lands and have less time to access the resources. The measure, crafted by House Natural Resources Democratic staff, raises the royalty fees oil and gas companies pay to drill on federal lands for the first time since the 1980s. It also shortens the duration of federal leases to access those federal resources from 10 years to five. 
http://thehill.com/leading-the-news/house-dems-propose-sweeping-changes-to-drilling-program-2009-05-22.html 
 
The light at the end of the tunnel is a huge increase in energy prices - the very reason that caused the domino effect of this recession.  The Economist said that the recessions started first in other countries and spread here due an increase specifically to energy prices.   
By Bella Mia on 05/22/2009 5:57 pm
Karen R
a lot of dinosaur thinking there
By Karen R on 05/22/2009 11:15 pm
phyllis Doyle Pepe
And speaking of dinosaurs: Let’s just ignore the environmental concerns––all that nasty C02 gas that is choking us and everything else on this planet, have the car companies keep producing their behemoths. Never mind the prospect of a low-carbon economy, never mind that Obama would like to reduce overall emissions of C02 and other greenhouse gases by 80% by 2050. from more than twenty tons per person per year to some 2,6 tons per person. Cars and trucks now account for about 20 percent of US greenhouse gas emissions, or more than than four tons per person per year, and more than 40 percent of US oil consumption. So given all that, when the smaller, fuel efficient, electric cars make it hard for long-legged brothers to get in and out, than by all means let’s just chuck it all and proceed as usual. Some always think short term; thank goodness we have someone at the helm that is thinking long term even if it hurts. 
By phyllis Doyle Pepe on 05/23/2009 8:02 am
Marjorie C.

phyllis:  Cars and trucks…

And what about the trucks?  I understand that electricity doesn’t work for them because of all the strength and power they need.  So the trucks with the black smoke coming out the stack get a pass.  Not to mention when the cost of fuel goes up they add it to their cost of doing business and anything they carry goes up in price.  So the consumer gets taxed over and over again — people on the lowest economic rung at the same rate as those at the top. 

Cars have steadily been getting better in emissions and mileage — eight cylinders are a luxury I can’t afford.  Standards have to get stricter, but not overnight.   

By Marjorie C. on 05/23/2009 11:03 am
phyllis Doyle Pepe
Interesting question, Marjorie. From my understanding there have been new standards for trucks, but don’t know the details.Yesterday when coming back from Ridgefield, Ct., being Memorial Day weekend, the traffic was getting very congested. I looked at all these cars and thought of a time when we could have some kind of super air rails, or like the Jetson’s individual air travel or something that would eliminate all these millions of vehicles pressed together on highways that take us hither and yon. And then I thought of yesteryear when we didn’t even have these highways, when we didn’t have all these cars and I marveled at how far we’ve come to dig ourselves in the big doo-doo we are in now. With progress comes problems. One of these days we are going to see bears in our back yard instead of all the deer that frequent it now. 
By phyllis Doyle Pepe on 05/23/2009 5:34 pm