How’d you like some good news for a change?
Here it is: The price of gasoline is tumbling and this week the average in the US should go below the $2-a-gallon level. That’s a cruel irony, of course, because part of the reason for the drop in prices is that Americans and drivers throughout the world can’t go anywhere because of coronavirus quarantines. So they aren’t filling up their tanks.
But the other major reason that gas is getting cheaper is the fact that the Russians and the Saudis are in a battle. Those two countries are continuing to produce more oil than the world needs right now in what is being described as “economic warfare.”
Now the strange part.
President Trump and some other Republicans have said they want to broker a peace between the Saudis and the Russians so the price of oil — and, as a result, gasoline — doesn’t continue to drop. Maybe it even rises.
Why the heck would the president want to do that!?
Let those two countries beat each others’ brains out and allow the price of energy to decline as much as the supply-and-demand, free market will allow.
Actually, the reason Trump wants to intervene is simple — but, I think, misguided. American oil producers are also being hurt by the low price of energy. That’s especially true for companies that produce expensive shale oil.
Our so-called energy independence in the future is at stake if companies stop exploring and drilling in the US. I have a solution that I think will make the president and the US oil industry happy, but also allow all foreign oil producers to continue their warfare without inflicting casualties here.
I know you are on the edge of your seats, but first some numbers.
The best deal in America right now is gasoline, which last week was selling nationwide for an average of $2.03 a gallon, according to AAA. That’s down nearly 50 cents a gallon in just the last month.
Can I hear a “hallelujah!” from drivers everywhere?
So everyone in America should be encouraging Russia and the Saudis to keep slugging it out. Better for us. Hip-hip-hooray for drivers!
In fact, gas prices are already well below $2 a gallon in most of the middle of the country, the mid-Atlantic region and in Florida. And with oil prices falling under $20 a barrel for a time Monday, gasoline prices should eventually come down some more.
Trump shouldn’t screw that up. Here’s a better way to protect US oil producers. I know my idea may seem counterintuitive, or put another way, stupid. But hear me out.
Pick a target price for gasoline of, say, $2 a gallon. In order to keep the US oil industry afloat, for every penny that gasoline falls below $2 a gallon, there should be a half-cent increase in the federal tax.
Oil producers are going to be looking for a bailout anyway. Why not make their bailout at least partially connected to the price of gas?
Let’s say gasoline fell to an average of $1.80 a gallon. It’s already lower than that in places around the country, so this isn’t pie-in-the-sky. And what if Washington added a 10-cents- a-gallon tax to recapture half of that 20-cent drop below $2 a gallon. Since drivers typically use 140 billion gallons a year, that would mean the government would get an extra $14 billion.
It’ll help bail out the energy industry. And drivers would hardly feel it, since they would simply not be getting all the savings they could be getting.
Now, let’s say the price of gas drops to an average of $1.50 a gallon — which is not so unlikely considering that wholesale gasoline prices (before all taxes) are now around 55 cents a gallon and still dropping fast.
In this case, the government could recoup half that 50-cent drop below $2 a gallon average — or 25 cents a gallon. And the extra tax it can use to bail out the energy industry would come to $35 billion a year.
“You never like to put through more tax, but it’s not the craziest idea I’ve ever heard,” said Denton Cinquegrana, chief oil analyst for Oil Price Information Service. But since the federal tax on gas — 18.4 cents a gallon — hasn’t been raised since 1993, Cinquegrana was receptive to the idea.
The key, according to Cinquegrana. would be in how this idea is explained. “If it’s presented as a bailout to the oil industry, people would lose their minds,” he said. But if you say the extra tax was going toward road repair, it would be an easier sell.
The beauty of this is that once gas prices got over $2 a gallon again, voila!, this extra tax would disappear.