Brian Gongol
In response to high gasoline prices, some Senators have proposed a $100 gasoline rebate for a large share of American taxpayers. Others have proposed suspending the Federal gasoline tax for a period of time. What would be the real effects?
Good Effects
Temporary relief from recent price increases
Rebates, tax holidays, and other direct measures would likely bring temporary relief from high prices. Since the price spikes have been sudden and Americans were generally spending everything they earned before prices rose, this temporary relief would be welcomed by many.
Bad Effects
Government intervention only encourages a death spiral of dependency
If it were government's place to smooth out price spikes in the oil market, then by extension it must also be the government's place to smooth out similar price spikes in the markets for other goods and services, like health care, Internet access, and housing in bubble markets. And if those are justified interventions, then why not intervene in other markets as well? Trips to the auto mechanic are costly, as are tickets to Major League Baseball games. The price of HDTVs is high, and so is the cost of hardwood flooring. Cases can be made for the "special-ness" of each of these markets (or, really, for any market at all), but the simple fact is that government intervention of this type is socialism.
The principle itself is wrong; if government's role is to intervene in the markets, then we live in a state of dependency, not one of freedom. And if it can be bought for the equivalent of three or four tanks of gasoline, our freedom is cheap.
A rebate will act only as a subsidy to oil companies
Just like the Medicare prescription-drug plan forms a de facto subsidy to pharmaceutical companies (and to big companies trying to manage significant retirement-benefit costs), a "rebate" on petroleum costs acts as a de facto subsidy to the suppliers of that petroleum.
The rebate comes from a supply of money we don't have
The US government is nearly $5 trillion in debt. From what magical pot does the rebate money come? At $100 for each of 50 million to 100 million households, the total cost of the rebate would be $5 billion to $10 billion.
The government contributes to the pricing problem
In many markets (including the one for autos, for which most of our petroleum is used), the Federal government is one of the biggest buyers. Rather than pretending to help with a rebate, the government would help more by insisting to carmakers that the new vehicles it buys have better fuel efficiency.
Rebate checks merely toys with the extreme fringes of the problem
Sending taxpayers a rebate check for the cost of gasoline is like planning for winter solely by weatherstripping the peephole in one's front door. It's a profoundly superficial act that has no real consequence in the larger scheme of things. The US spends $23.4 billion a year on the Department of Energy. The government would probably gain more for the money it invests in the department if it were to take less than half of that amount -- $10 billion -- and offer 20 inducement prizes for $500 million apiece. Each prize would be awarded for achieving one of the 20 most effective means of either decreasing consumption of energy or producing it more efficiently. For $10 billion, we'd be much better off buying substantial progress than temporarily offsetting some consumer discomfort.