Gas Price Politics

Republicans are reacting to public outrage over high gasoline prices by dusting off the Carter-era “windfall profits” idea:

President Bush, faced with rising public discontent over high fuel prices, today directed his administration to help investigate possible price gouging and ordered a temporary halt to deposits in the Strategic Petroleum Reserve. In a speech in Washington to the Renewable Fuels Association, Bush also promoted a variety of measures aimed at reducing U.S. dependence on foreign oil, which accounts for 60 percent of domestic consumption. But he ruled out any “price fixing” or tax increases, policies he attributed to Democrats in the past and that he said have not worked.


The combination of rising gas prices and Bush’s declining popularity have contributed to worries among Republicans about this November’s midterm elections. In a letter to Bush yesterday, House Speaker J. Dennis Hastert (R-Ill.) and Senate Majority Leader Bill Frist (R-Tenn.) urged Bush to order a federal investigation into any price gouging or market manipulation.


Saying that Americans “will not accept . . . manipulation of the market, and neither will I,” Bush said he was directing the Justice Department, the Federal Trade Commission and the Energy Department to contact the attorneys general of the 50 states “to offer technical assistance to urge them to investigate possible illegal price manipulation within their jurisdictions.” He also called on energy companies to reinvest their “large cash flows” into expansion of refinery capacity and energy production. “We expect there to be strong reinvestment,” he said.

While opposing any tax hikes, Bush said energy companies today “don’t need unnecessary tax breaks” or subsidies, and he called on Congress to take $2 billion worth of such benefits out of the budget over 10 years. He described these benefits as “the write-offs of certain geological or geophysical expenditures or the use of taxpayers’ money to subsidize energy companies’ research into deep-water drilling.”

Meanwhile the Democrats are reportedly considering a Reaganesque policy of cutting gas taxes.

Democrats are set to introduce a measure that would create a “federal gas tax holiday” by eliminating the federal tax on gas and diesel for sixty days, RAW STORY has learned. The measure, proposed by Sen. Bob Menendez (D-NJ), would reduce the cost of gas by $0.184 per gallon and the cost of diesel by $0.244 per gallon. The move, aides say, will provide $100 million dollars per day in relief.

Democrats say the money will be made up by cutting six billion dollars in tax breaks to oil firms. Currently, the money from the federal gas tax goes to the Highway Trust fund.

Something seems wrong about this picture but I can’t quite put my finger on it.

Net Profits 3rd Quarter 2005 Elsewhere, Jason Smith wonders why it’s price gouging when the oil companies make 8% profits but not when other industries do.

Henry Payne points out that government’s share of the responsibility for high fuel prices includes substantial regulatory costs in addition to high gas taxes.

Pejman Yousefzadeh sees this is a case study in the inexorable growth of government.

When government refrains from acting because either (a) intervention would only serve to make the problem worse or (b) because intervention will do nothing to actually solve the problem, the government officials behind the decision to refrain from action will be accused of not caring about the problem at hand. This will cause them to panic at the prospect of being on the wrong side of public opinion, and then engage in fruitless busybody behavior so that they can transmit a “Message: I Care” image to the public at large.

Quite right. Nixon imposed wage and price controls fully knowing they would not stop inflation. Bush feels he has to give the appearance of “doing something” and is doing something silly and counterproductive.

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James Joyner
About James Joyner
James Joyner is Professor and Department Head of Security Studies at Marine Corps University's Command and Staff College. He's a former Army officer and Desert Storm veteran. Views expressed here are his own. Follow James on Twitter @DrJJoyner.


  1. DC Loser says:

    So tell me why he pushed us further into debt with the stupid Medicare medicine bill.

  2. Fersboo says:

    I have no clue on how to trackback so I will just provide a link to a related post.

  3. “Something seems wrong about this picture but I can�t quite put my finger on it.”

    The problem, as I pointed out on my own blog, is that $100 million per day for sixty days = $6 billion, the exact amount they plan to (effectively) raise the oil firms’ taxes by. The idea that these companies are going to just swallow $6 billion in taxes rather than do the obvious and pass it right back to consumers is ludicrous – and proves once more that our elected leaders don’t understand the first thing about basic economics.

  4. PS: I would’ve trackbacked that post, but your trackback server blocks out my blog and I can’t figure out why.

  5. James Joyner says:

    Russ: Very odd. You’re not showing up in my spam moderation queue.

  6. Herb says:

    Your chart was most interesting.

    We can now see why we are paying through the nose for drugs and gasoline. I heard on the news today, that the Oil Companies made over 320 Billion in profit since 2001. A Fair pro fir is fine, but we are real ly gouged at the pump. And we are the victims of “Price Fixing” by the 5 major oil companies. (The 5 control 60% of the Oil).
    As for the Drug Companies, they to are a Price gouging, price fixing bunch of greedy rear ends also, and Congress did not want to negotiated with them on drug priced for the Prescription Drug Plan that is so far costing the taxpayer over 800 Billion dollars.

    We can now see that all that lobbying money is being spent on Congress, is nothing more than a “Payoff”.

    Sir Winston was almost right, and would today say, “Never has so many done so much for so few

  7. James Joyner says:

    Herb: It’s a massive industry. How much profit is too much? Does Wal-Mart make too much? Starbucks?

    Why is it that people don’t think the theaters are price gouging when they charge $9 to sit an watch a 90 minute movie with stars making $20 million for a few months’ work?

  8. Steve Verdon says:


    The profit margin for pharma companies is over twice as much as oil companies…so exactly what is a “reasonable” profit margin? Zero or negative?

    As for the pharma companies and price fixing, no kidding, but that is legal. They are granted temporary monopoly status after all.


    Well, they oil companies wont necessarily be able to pass on the full amount of the tax. The reason has to due with the slope of the demand and supply curves. The oil companies will take a hit, but so will consumers. So qualitatively you are correct, but quantitatively your missed by a little bit.

  9. McGehee says:

    Meanwhile the Democrats are reportedly considering a Reaganesque policy of cutting gas taxes.

    That dang stopped clock better get a move on or it’s gonna lose the race.

  10. Doug Halsted says:

    I think it is important that we ask and answer the right question. The question isn’t “what do we do about the high price of oil?” The question is “how do we move ourselves and our cargo around the country cheeply and efficiently?”

  11. Herb says:


    I won’t pay $ 9.00 to go see a movie and I will not support a bunch of so called actors, who make far to much, and see their movies. I have a choice not to support them, but I still have to drive to the grocery store and I still have to drive for a number of reasons. I have cut way back on my driving because it just cost to much for gasoline. No matter how you feel about it, gasoline is like the telephone and an automobile. They have become and are a necessity in to days mobile society. To much is having the ability to pay out 400 million as a retirement package and over 320 billion in 3 years of profit. Also, the drug companies fall into the same category.


    When one takes a 20 to 25% wage cut, it hurts. When a working guy with a family takes such a cut, it can be disastrous. The pres ent cost of gasoline equates such a wage cut. I don’t give a tinkers damn about economic theory’s or this trumped up supply and demand excuse. The fact is that the average working American is feeling the pain much more that the fortunate people who earn enough to pay these high prices. and I don’t care whose fault the high prices can be attributed. There is plenty of room for that everywhere.

    If people on the east coast and the west coast, who have to pay high prices for almost everything would ever get into the heart of America and really see what the people think of the high prices, you would have an entirely differeat perspective.

  12. Steve Verdon says:

    20-25% Wage cut?!?!?!

    What are you talking about. Lets consider a person who makes $10/hour and works 40 hours a week. That works out to $400/week. If gas goes from $2.5/gallon to $3/gallon and they consume say 40 gallons that is $0.50 x 40 or about a $20 increase. That is only 5% of this guys (gross) salary/wage.

    To get a 20 to 25% decrease the increase would have to be 4x or 5x as large. That is an increase of $2/gallon to $2.50/gallon.

    Also, if we have a higher wage rate, then the implicit wage decrease is smaller.