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Gas, taxes and Middle East policy

By Dr. Ron Paul

My constituents in the Gulf Coast are very concerned about the price of gasoline, especially in the wake of Hurricane Katrina. The hurricane has left nine refineries along the Gulf Coast inoperable and reduced capacity at four others, which will mean the loss of 20 million to 40 million barrels of oil in coming months. Prices at the pump could reach more than $3 per gallon.

Congress can help immediately by suspending federal gas taxes, which add 18.4 cents to the cost of every gallon of gasoline. (In addition to these federal taxes, Kentuckians are paying 18.5 cents in state taxes per gallon of gasoline.) This is the quickest, simplest and best way to drop gas prices and ease the financial impact of Katrina.

Citizens are always asked to sacrifice during crises. Government should do the same and give every American short-term relief at the pump. Congress should pass – and President Bush should immediately sign – a bill suspending the federal gas tax, which would create pressure for states to do the same. It would be better to leave this money in the pockets of the American public, especially since we are all being asked to provide financial help to hurricane victims.

As prices have risen at the pump, many people understandably become upset with oil companies. However, the fundamental problem is not a lack of regulation or price gouging, but rather the need for more price competition between oil companies.

The maze of regulatory and environmental rules makes it nearly impossible for would-be competitors to explore new domestic sources of oil or to build new refineries. It’s rare to hear of a new oil company starting up because of an excessive amount of government regulations.

History proves time and again that the best way to provide any product or service is to allow markets to operate freely. Without new oil exploration and new refineries, our domestic capacity is fixed.

As demand rises with the growth of the U.S. population, we find ourselves increasingly dependent on oil-rich nations, many of which have questionable governments. With worldwide demand for oil increasing and our domestic supply fixed, we face a new era. We must increase domestic production, pure and simple.

America cannot afford to be held hostage by unrealistic environmental rules that threaten to strangle our economy. Existing refineries – most of which are concentrated along the Gulf Coast and vulnerable to annual hurricanes – cannot carry the nation if we hope to maintain reasonable prices at the pump.

Turmoil in the Middle East is a clear indication that we cannot depend on Organization of the Petroleum Exporting Countries (OPEC) to make up for the lack of domestic production at home. As recently as 2002 – before we went to war in Iraq – oil cost less than $20 per barrel. Now, the price has risen to nearly $70 per barrel.

Before the war, it was predicted that a renewed flow of cheap Iraqi oil would benefit American consumers. Instead, oil production has come to a halt in Iraq and OPEC prices have risen steadily during the past few years.

However, Iraqis can buy imported refined gasoline for as little at 5 cents per gallon, courtesy of American taxpayers! Iraqi officials use American tax dollars to buy this fuel from the Saudis or other OPEC nations at market rates. This subsidy to Iraq cost us nearly $3 billion in 2004 alone.

What kind of foreign policy justifies using your tax dollars to subsidize gas prices in an oil-rich nation while prices skyrocket here at home? We must change our priorities in order to focus resources on the American people. The United States cannot count on using military or political influence in the Middle East to keep gas prices low.

It’s easy to call for drastic government action in the emotional aftermath of Hurricane Katrina. But we must not ignore history, logic and basic economics.

The Nixon administration imposed price controls on gasoline in the 1970s, which resulted in shortages and long lines at the pump. The price mechanism is necessary to create an incentive for oil companies to increase the amount of refined gasoline available.

Price controls also discourage the development of alternative fuels. When President Reagan lifted price controls, worldwide oil production increased dramatically and gas prices plummeted.

Electric, hybrid and alternative-fuel vehicles may be on the distant horizon. But for the foreseeable future, the American economy will continue to depend on oil. We must face this reality and increase the number of domestic refineries, while also considering immediate tax relief at the pump.

– Rep. Ron Paul, R-Texas, is the leading spokesman in Washington for limited constitutional government, low taxes, free markets and a return to sound monetary policies. This article originally appeared September 7 on Texas Straight Talk, an online weekly column.

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