Saturday, July 9, 2022

Dropping gas taxes is pointless



Translated to Murican't thats $10/gallon


The current high prices of gasoline have made many people to demand gas tax cuts. Some governments have even responded to the call, and cut gas taxes. I do understand some people are hit hard by rising gas prices. But in Finnish we have a saying "Pakkasella pissa housuissa lämmittää vain hetken". Roughly Translated "In winter, peeing into your pants will only keep you warm for a moment".

See, the reason for the current high gas prices is simple: Demand > Supply. As long as there more demand than there is supply, the prices keep rising until demand and supply matches. If you want the gas prices to drop, you have to either increase supply or reduce demand - usually you want both. Reducing gas tax does neither. In fact, reducing gas tax INCREASES DEMAND, as after tax cut people can afford to drive around more...

So while cutting taxes reduce prices for a short period of time, the end result is just more pressure to rise gas prices. Cutting gas taxes is a great way to get you re-elected, but if you really want to help the people struggling with high gas prices, you should do something else.

Reality is of course more complex - with everyone expecting a recession, the oil prices are already falling regardless of any tax changes.