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Reason Foundation

Gassing the Gas Tax

Shikha Dalmia
May 1, 2008, 2:47pm

The New York Times has a front page story this morning reporting what a whooping rising gas prices are delivering to America's Former Big Three. Car buyers are abandoning large SUVs and pick-up trucks – the segment that the American makers dominate and on which they have the highest profit margins – for more fuel-efficient subcompacts – that the Japanese dominate and on which they have the highest profit margins. The result is that while Ford and GM posted double digit declines in their April sales over the same time last year – Toyota actually posted an increase. Under such circumstances, one would think that US car makers would treat John McCain's (and Hillary's) proposal for a gas tax holiday like manna from heaven. Whatever the flaws of the idea from an overall public policy standpoint – and there are plenty as Bob Poole has pointed out – at least it offers them a bandage to stop their bleeding. But, as it turns out, America's auto companies are vehemently opposed to a gas tax holiday, the Detroit Free Press reports. (Instead, Chrysler CEO Bob Nardelli wants the government to offer incentives to buy fuel efficient cars made in America. Talk about self-serving rent seeking!) Ford and GM are continuing to ask for higher gas taxes – even though that means potential annihilation of their most profitable products. Why? Essentially because the only way they can meet the government's new, more stringent Corporate Average Fuel Economy standards is by shifting their vehicle mix from large, gas-guzzlers to smaller, more fuel efficient cars. And higher gas taxes would ensure a market for their new lines. Auto executives call this "aligning" consumer demand with the nation's fuel economy goals." Translation: If we are getting screwed by the government, why shouldn't American consumers as well?

Shikha Dalmia is Senior Analyst


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