With gasoline prices near $2 a gallon in some parts of the country, drivers and businesses are understandably edgy. Rising gasoline prices reduce disposable income and make transportation, which impacts nearly every sector of the economy, more expensive. If gas prices get too high, it will adversely affect economic growth and slow down job creation.
Future gasoline prices will depend on many factors, including the scheduled production cutbacks by OPEC, which in large part are the direct consequence of the decline in the value of the dollar. Oil is priced in dollars, and when the dollar depreciates, the real value of oil declines to producers who must sell the commodity for dollars in global markets.
Because of its strong connection to the economy, the price of oil at the pump could become a prominent issue in the coming presidential campaign. This raises obvious questions: where do the two candidates stand on gas tax increases?
Sen. John Kerry, D-Ma., has left no doubt where he stands. He wants to make gasoline more expensive by raising taxes and imposing misguided environmental policies that increase fuel costs even more. Kerry believes these costs can be offset by a massive increase in the mandated fuel economy of automobiles, which he and Sen. John McCain, R-Ariz., would impose by new legislation they have introduced. By some estimates, the Kerry-McCain legislation raising the Corporate Average Fuel Economy efficiency standards of vehicles would destroy 450,000 jobs, boost the sticker price of cars and do little to reduce imports of foreign oil.
President Bush opposes increases in both federal gas taxes and so-called fuel efficiency standards. Despite heavy pressure from the Congress, Bush continues to resist attempts in the Congress to increase federal gas taxes to pay for the swollen transportation reauthorization bill currently making its way to his desk. By threatening to veto that bill, he not only drew a line on spending increases (the Senate bill would add another $10 billion a year to deficit spending during the next decade), he also put a stop - for the time being - to the $125 billion gas-tax hike that many members of the House, including some Republican members and the Republican chairman of the Transportation Committee, want to impose on motorists.