For the less than the cost of the Bush tax cuts, we could all live in Gingrich's fantasy
Newt Gingrich is a man of ideas. Big ideas. So far this campaign, he's advocated for child janitors, a lunar colony, and most recently, an all out, damn-the-torpedos push to get the price of gas back down to $2.50 a gallon.
The plan is a bit light on specifics. He seems to think that by opening up every last potential oil patch in the 50 states to development, we can drill our way to cheap fuel. But even if America can drastically increase its crude output, there's no escaping the fact that as China, Brazil, and India continue to grow, their gas-thirsty economies are going keep petroleum prices rising.
That's no reason to stop dreaming, though. And as it turns out, there is a (relatively) simple solution that would get gasoline back down to $2.50 gasoline for every motorist in America. Subsidies! For roughly $187 billion per year, the federal government could make Newt's big idea a reality. (Of course, it would also crush his other big idea, which is to slash government spending.)
Here's how we get to $187 billion. First, we need to figure out just how much gasoline Americans consume. The last decade has been a pretty bumpy time when it comes to gas use, which surged during the housing boom, collapsed during the recession, and has since stayed fairly low. To get a reasonable working number, I took a look at data form the Energy Information Administration, and averaged the amount of gasoline American drivers used annually for the past seven years, which comes out to about roughly 3.3 billion barrels (last year, the U.S. used a little less than 3.2 billion barrels). There are 42 gallons of gas in a barrel. Multiply it out, and you get 134 billion gallons of gas a year.
Next step: figuring out how much Uncle Sam will need to subsidize each gallon of gas. Frankly, there isn't a great way to do this, given the volatility of the oil market and the absolute uselessness of trying to forecast the future of world events. But since anxiety over the standoff between Iran and the West has pushed world oil prices above $120 a barrel, we're probably not in danger of underestimating the near-term cost by using today's pump prices, which are currently averaging about $3.85 a gallon.
To make our way down to $2.50, first we'll have to cut the 18 cent gas tax, which is used to fund highway construction, as well as other transportation projects. That means giving up around $25 billion a year in revenue, which the government will need to find some way to replace -- after all, there's no point in cheap gas if we don't have functioning roads to drive on. In the end, we'll have to count it as additional spending. After that, we're left with a subsidy of about $1.17 cents. Multiply that by 134 billion gallons per year, and you get $157 billion. Tack on the $25 billion gas tax, and we get $187 billion.
Now, this is obviously a very, very rough, unscientific estimate, which could be complicated by a number of factors. First off, bringing down the cost of gasoline is likely to make drivers use more of it. How much more is tough to say. Although there are plenty of researchers out there who have tried to calculate the way gas demand reacts to price, I'm not going to venture there. The point is, Americans will probably pump more gas. And if we do, that means crude oil demand will increase, pushing up prices, along with the cost of the subsidy.
But it's not as if we couldn't find ways to pay for it. Take the Bush tax cuts. According to Citizens for Tax Justice, they cost roughly $2.5 trillion over their first ten years. You could nix them, replace them with a fuel subsidy, and still have plenty of revenue left over for a few other projects.
This isn't a brilliant plan. There's no quicker way to screw up the market for a crucial resource than by subsidizing it heavily. But it is a big idea. If Newt Gingrich really wanted $2.50 gas, all he'd have to do is act like one of those socialists he's so fond of.