Obama’s Math is a bit (er, WAY) “off” on Gas Tax Savings

Far be it for me to attack Obama. Hey, he’s the one Democratic candidate I have liked so far. But I have to go after what is quite honestly either the sloppiest math I have seen, or the most disingenuous campaign rhetoric to cross through this campaign cycle.

I was reading the blog over at “Imperfect Mommy” where I read, and at first accepted without questioning her comment “I read yesterday that suspending the gas tax would save the average American $30 over the course of the summer. $30.” Of course, then I felt rather guilty for not questioning the number. Not because I don’t trust her, but because it just seemed a bit “off.” At first I just figured “well, with almost 5 drivers in the family we are certainly not ‘average'” but then I realized–no one is.

My first thoughts, as a good researcher where:

  • Who did the research that determined $30 per average American?
  • How did the structure the demographic of the analysis?
  • Did they consider that a significant percentage of “Americans” don’t drive? (And I don’t mean just those too young to drive.)
  • What percent of the population lives in cities and doesn’t drive? Doesn’t even have a license?
  • How many people would it take to have an every man woman and child each get “$30”?

So let’s look at some numbers.

  • If the tax is $0.18 per gallon (for gasoline), then a $30 savings is the equivalent of purchasing 166.67 gallons of gas. In a typical 20 gal tank, that equates to 8.3 fill-ups. I know many people that fill up their tank at least once per week. The summer is 12 weeks long. If “most” people fill up only 12 times, that savings is really $45.
  • According to the Washington Post, the revenue the government will lose will be $10 Billion dollars. That’s a hefty sum! If you divide 10 billion by 30, we can determine just how many Americans will be receiving this benefit. The answer? 333,333,333.3. Yup. 333 MILLION Americans each will save $30.
  • According to the US Census Bureau, there are only 255,103,151 people in America.
  • According to Senator Obama 78,230,182 more people will save $30 than are actually in the US. That’s right apparently we have 78 MILLION more people in the country than we think!

Now, these “quick and dirty” numbers are just that. I haven’t figured in the greater savings that the trucking industry would see, since they have a higher per gallon tax and a higher consumption rate. I also haven’t factored in the interplay between changes in gas prices, and changes in consumption. While it is argued that demand for gasoline is inelastic (that is, does not change much with changes in prices) there is some elasticity if people cancel longer driving vacations in the summer.1

While the caveats I noted above could lessen the benefits of the tax “holiday” there are other issues to consider that would increase the impact for those that actually drive. To get to the $30 per average American, you have to ignore that most households are made up of more than 1 American (thus increasing the household savings), and that many Americans don’t drive, and most likely don’t even own a car. It would be interesting to figure how many people in large cities such as New York City rarely, if ever, drive.

The bottom line is this: The savings for people who actually drive in the summer is most likely larger, and potentially by a significant amount. Don’t just “repeat what you hear.”

Think about it.

Question it.

Challenge it!

1 Interestingly, the demand for diesel fuel should be even more “inelastic” relative to fuel prices since that demand is driven more by demand for products delivered by truck. That demand is impacted perhaps only inasmuch as higher fuel prices leave less disposable income. A more “derived” demand elasticity.


4 thoughts on “Obama’s Math is a bit (er, WAY) “off” on Gas Tax Savings

  1. I know for my family, the savings would very minimal. We are probably the exception, and not the rule, though. My husband fills up a couple times per month, and I fill up once every 3 or 4 weeks. Hubby lives close to his office and I am a stay at home mom who doesn’t drive a whole lot.

    Do you think that the oil companies will just raise prices once that would go into effect? I guess I appreciate the effort, but I truly believe that this is just rhetoric. Something to ease our minds.

  2. But what is the average gas tank size? Mine is only 11 gallons. They usually make the tank big enough to get a reasonable range despite poor mileage.

    And what is “average”? The “average person” might be a reference to the *median* rather than the mean. Just like income, where the mean is much higher than the median, the average consumption can be biased by the extremes. For every person in NYC who does not drive, there is someone (like my wife’s coworker) burning 5 gallons a day commuting in a huge SUV … and don’t forget the taxis.

    I have not checked the reliability of the data, but stats at statemaster.com show California has the lowest gasoline consumption per capita (1/10 of the national average). Bizarre. Most of the big electoral states were below the mean, by the way, so McCain helps Wyoming (at the top) and hurts Ohio (next to last) by transferring debt needed to cover the rebate from one to the other.

    IMO, a “gas” tax cut is pandering because it is a small change that is highly visible yet easily stolen by Big Oil. A “diesel” cut would have a bigger impact, but the change in food prices might be stolen to increased margins in grocery stores and would be invisible to the typical consumer. (I consider it highly likely that I consume more diesel, indirectly, than gasoline.)

    Finally, gasoline consumption is said to be inelastic to price increases, but I think that is only because we only did the experiment twice (in 1980 and today). Consumption is going down in the face of a *real* increase in price. The effect of inflation masks what is really going on.


    The price of gas (in real dollars) reached its ALL TIME LOW in 1998 (the equivalent of 27 cents per gallon in 1970 dollars), and has only recently exceeded the $3.00 per gallon equivalent of the price in 1981. We drove gas guzzling muscle cars back in the 60s, so why not an SUV in 1998?

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