U.S. Congressman wants to help OPEC
Indiana Congressman Hill wants to lower gas taxes. He will "soon introduce a bill repealing the federal gasoline tax when the average price of gasoline nationwide reaches more than $3 per gallon." "To supplement this lost revenue, the federal government would suspend the tax incentives given to big oil companies."
Let's look at this from the point of view of OPEC. When OPEC raises prices two things happen, the first (from their viewpoint) good and the second bad.
- OPEC gets more money from each barrel of oil it sells, but
- OPEC sells less oil in part because the higher price of oil raises the price of gas, which causes Americans to drive fewer miles which causes Americans to use less oil.
Congressman Hill's proposal would lesson the power of (2) because now when OPEC raised the price of oil high enough and so pushed up the price of gas above $3, the gas tax goes away causing Americans to drive more than they would absent Congressman Hill's proposal. The proposal reduces some of the negative effects that manifest for OPEC when it raises prices and so will result in OPEC having a higher optimal oil price.
The Federal gas tax hurts OPEC because it causes Americans to use less oil. Congressman Hill's bill says to OPEC that if you raise the price of oil high enough, we will eliminate something that causes you harm. Hill's bill, therefore, essentially begs OPEC to raise the price of oil high enough so that the price of gas goes above $3 a gallon.
(See Schansberg and Mankiw to learn about some benefits of the gas tax).
