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528,399,054
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Updated on May 24, 2022 7:18 am
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Tuesday, May 24, 2022

Global Statistics

All countries
528,399,054
Confirmed
Updated on May 24, 2022 7:18 am
All countries
484,651,985
Recovered
Updated on May 24, 2022 7:18 am
All countries
6,302,077
Deaths
Updated on May 24, 2022 7:18 am
Molderizer and Safe Shield

How Should Democrats Respond to Rising Inflation and High Gas Prices?

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When President Joe Biden arrived home from Europe this past weekend, he was greeted by a pair of grim opinion polls. An NBC News survey put his job-approval rating at forty per cent, the lowest figure the organization has recorded since he took office. The NBC poll also found that Americans rank the cost of living and jobs ahead of the war in Ukraine in terms of the most important issues facing the country. In another disturbing finding for the White House, almost two-thirds of the respondents said that they disapproved of Biden’s handling of the economy. An Associated Press/NORC poll that was released on Friday produced some similar findings.

The polling data confirm the political threat that rising inflation presents to the White House and, by extension, to Democrats hoping to maintain control of Congress in this year’s midterm elections. In the Associated Press/NORC poll, about seven in ten respondents said that the economy is in bad shape, which simply isn’t true if you go by G.D.P. growth (6.9 per cent at an annualized rate in the last quarter of 2021) or the unemployment rate (3.8 per cent in February). Rising prices—particularly the prices of some highly visible items in the family budget—are now at the root of people’s economic concerns. Sixty-eight per cent of respondents to the Associated Press/NORC poll said that they are “Extremely concerned/Very concerned” about high gas prices impacting their family finances, and fifty-nine per cent gave the same response for groceries. As the cost of gasoline has risen by about forty per cent in the past twelve months, and the cost of meat, poultry, fish, and eggs has risen by thirteen per cent, these concerns are comprehensible.

One hopeful finding for the White House is that a majority of Americans do seem to accept that rising energy costs are largely outside the President’s command. When the respondents to the Associated Press/NORC poll were asked if higher gas prices “are more because of President Biden’s policies or more because of factors outside Biden’s control,” fifty-five per cent chose the latter. Another plus for the White House: in the same poll, nearly seventy per cent of respondents said that they approved of U.S. economic sanctions on Russia, and more than half said that the biggest priority in response to Ukraine now should be “sanctioning Russia as effectively as possible, even if it damages the U.S. economy.” In the NBC News poll, seventy-nine per cent of respondents said that they agree with the U.S. decision to ban Russian oil—even if it causes higher gas prices.

Evidently, large numbers of Americans recognize that, with the coronavirus pandemic and the war in Ukraine, we are living through extraordinary times, which have had some adverse economic consequences that can’t be entirely, or even largely, blamed on Biden. At the same time, though, negative perceptions about the economy and inflation are a definite drag on the President’s ratings. In March, 2021, the Consumer Price Index was increasing at an annual rate of 2.6 per cent, and Biden’s job approval in the Real Clear Politics poll average was comfortably above fifty per cent. The latest C.P.I. Index, for February, showed inflation at 7.9 per cent, and the Real Clear Politics poll average currently puts Biden’s approval rating at 41.2 per cent.

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In these circumstances, how should the White House and congressional Democrats respond? To provide motorists with some financial relief, two Democratic senators who face reëlection contests in the fall—Maggie Hassan, of New Hampshire, and Mark Kelly, of Arizona—have proposed suspending the federal gas tax for the rest of this year. As the tax is only 18.4 cents a gallon, removing it wouldn’t have a huge impact on gas prices. But this move could send a signal to voters that the White House and the Democratic Party are sensitive to their concerns.

At the local level, some Democratic governors are already moving to suspend or reduce state gas taxes, which in many cases are higher than the federal levy. Last week, Connecticut’s Ned Lamont signed emergency legislation to suspend the gas tax from April 1st to June 30th. California’s Gavin Newsom has proposed reducing his state’s levy for a year. And Governor Kathy Hochul, of New York, said that a gas-tax reduction is also a possibility in her state, despite opposition from a coalition of environmental and transportation groups.

Some opponents of suspending the federal gas tax are concerned that it would deplete the Highway Trust Fund, which relies on the gas tax for revenue and had been starved of funds until the recent infrastructure bill. To address this concern, Congress and the Administration could pledge to make up the lost revenues, which the Committee for a Responsible Federal Budget estimates to be a relatively modest twenty billion dollars. Other objections to a gas-tax holiday are that gas stations might not pass along all of the cost reduction to consumers, and that, given the threat of climate change, the federal government should be taking measures to reduce gasoline consumption rather than sustain it. Compared with many other advanced countries, fuel taxes in the United States are already very low, which is one reason why this country’s carbon imprint is so humongous.

A different idea, supported by many progressive Democrats, is to introduce a windfall tax on energy companies, and then use the proceeds to provide financial relief to hard-pressed taxpayers. Under a piece of legislation that Senator Sheldon Whitehouse, of Rhode Island, has put forward, the federal government would impose a tax on each barrel of oil that big energy companies produce or import. The new tax would be set at half the difference between the current oil price and the average price in the years from 2015 to 2019, before the coronavirus pandemic and the war in Ukraine. At an oil price of a hundred and twenty dollars a barrel, such a tax could raise about forty-five billion dollars, Whitehouse claims, enough to issue federal rebates of around two hundred and forty dollars a year to single filers who earn less than seventy-five thousand dollars and around three hundred and sixty dollars to joint filers who earn less than a hundred and fifty thousand dollars.

Last week, Senator Bernie Sanders, of Vermont, called for a much larger windfall tax, which would target any big corporation that is making supra-normal profits. Under this proposal, the federal government would impose a levy of up to ninety-five per cent on the “windfall profits corporations have made that are above and beyond what they made during the five years that preceded the pandemic,” according to a fact sheet issued by Sanders’s office. “Because the tax is on profit and not revenue, companies that raise prices for legitimate reasons related to rising expenses would not be penalized.”

So far, the White House hasn’t commented on any of these proposals. The new budget proposal that it released on Monday didn’t include them, but the Washington Post’s Jeff Stein has reported that Administration officials are holding internal discussions about “potential ideas for bringing relief to consumers” of energy. According to Stein’s story, a federal gas-tax holiday and a windfall tax on energy producers are both on the list of things being considered—along with another big release from the Strategic Petroleum Reserve, and also new financial incentives for energy companies to expand production.

From an economic perspective, taxing windfall profits during extraordinary circumstances and focussing financial assistance on the most needy both make eminent sense. As Sanders pointed out, the U.S. government introduced these types of taxes during the Second World War, the Korean War, and again in the nineteen-eighties, in response to the second OPEC oil-price crisis. It’s not clear, however, which, if any, of the options that have been touted could make it through Congress in short order.

To many Democrats, though, the option of simply waiting out the spike in inflation is no longer politically tenable. At his latest press conference, the Federal Reserve chair, Jay Powell, said that he and his colleagues “expect inflation to remain high through the middle of the year,” before starting to fall in the year’s second half. For candidates who will be vulnerable in November, that could be too late.



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