Dissecting the Gas Tax Holiday

By Charles Delvalle

I haven’t gone on a political tirade in a good while (or as my friends would say, in a hot minute). But the one I’m about to go on could really affect the way we look at the economy in the future.

So let me start from the beginning.

The Presidential election is about seven months away. And at this point in the game, it’s time for the candidates to really talk about what they would do if they were president.

So John McCain comes up with a swell suggestion (yeah, that’s sarcasm).

John basically says that he understands that higher gas prices are really affecting the way consumers spend. He knows that when people see gas ten cents higher every week, it puts a damper on their good mood.

So John offered a solution. He says, hey, if we roll back the gas tax during the summer, then everyone will have more money to spend and that should give the economy a lift.

The gas tax is 18.4 cents per gallon. So instead of paying $3.50, I’ll pay $3.32. My gas tank is 17 gallons and I fill it up four times a month. So for me, I’d end up saving a whopping $12.24 every single month.

Want to know what I plan on buying with that massive savings? Food. That’s right, this $12 extra dollars a month should give me just enough to cover the rising costs of wheat, corn, rice, and meat. I realize that this tax holiday gives truckers and those who travel a lot, a much larger benefit.

But did you know that if the gas tax is cut for three months out of the year, then the crews that repair our busted bridges and roads won’t be able to work as long. That’s because this gas tax goes directly to what they do.

So how does the government fix that? They can lay off workers, raise taxes somewhere else, or let the deficits rack up.

With McCain in office, I can tell you he wouldn’t raise taxes. He’s made that point very clear. If he’s into cutting spending as much as he says he is, then he’ll lay off workers right in the middle of a recession. And if he doesn’t have the political muscle to get a spending cut through congress, then the cost of that gas tax holiday contributes to more deficit spending.

And those aren’t even the worst things about this tax holiday. According to the New York Times, this holiday could actually increase the demand for gasoline (since prices are lower) which could increase the price of gas. In other words, the gas tax would benefit the sheiks in the Middle East.

So it appears that McCain has it backwards. Cutting the gas tax is nothing more than a move to get people to vote for him.

Heck, why doesn’t he advocate cutting the tax on a pack of cigarettes. I’m sure all the people getting laid off or realizing that food will cost them $50 more every month might get stressed out and want to smoke.

The truth is gas in the United States is some of the cheapest in the world. The tax we have on gas is also one of the lowest among industrialized nations. We pay roughly five percent in tax. Europe on the other hand pays about 70 percent. We shouldn’t be looking at the gas tax as a fix for anything.

The solution to higher gas prices is really far more complicated than a reduction of an 18 cent tax. The solution is in moving away from gas entirely. This would create newer, higher paying jobs that would help the economy down the road. Plus, it would lessen the impact gasoline has on inflation.

If McCain really wants a quick way to help the economy, he could look at ending the whole corn-based ethanol craze. If it weren’t for food being used for energy, the price of food would never have popped as high as it has.

Did you know that the price of rice has jumped nearly 500% in just four to five years? Or the price of corn is three times more expensive than just three years ago? Wheat, soybeans, and meat are all increasing too.

Plus, corn-based ethanol is a stupid fuel anyway. It barely produces more energy than it takes to create the stuff. And even that is up for debate.

But instead, McCain wants to offer a tax cut that does nothing to address any of the problems we have right now.

Tell me, how does this tax cut help the dollar? How does it cut back deficit spending? How does it help move the U.S. away from gasoline consumption? How does it create more jobs? How does it increase GDP? It won’t do any of those things and in fact, will do the exact opposite.

So how does this help you? Well, if the gas tax holiday actually passes congress early this summer, you can expect oil prices to rise. So you can buy the United States Oil Fund ETF (USO).

As this tax cut does nothing to help the dollar, you could buy the Streettracks Gold Trust (GLD) or even better, the iShares Silver Trust (SLV).  These two ETFs will continue to do well as the dollar falls.

Another very important lesson is that change is fleeting. In other words it’s very rare to see a real substantial change in politics. And even rarer is when that change actually helps instead of hurts our economy.

McCain, Clinton, and Obama all have misguided economic policies they hope will work. But you can be sure that the same old things that happened in the past are sure to continue.

As long as you can keep that in mind, then you’ll never be shocked by mindless government actions that aren’t good for anyone. Not to mention you’ll have the lucky shot at making some easy cash from it.

Until next time,

P.S. I just started up a new blog and would love for you to check it out.  Just go to http://stockcharlie.blogspot.com/.  I’ll be giving you my unrestricted opinion on economic developments and the effect politics can have on the markets.  Make sure to comment and let me know what you think!

Market Watch

Ride or Slide: TTM Resources (V.TTQ)

By Charles Delvalle

I have a confession to make… I love our readers.

Last week I ranted and raved about how nobody was sending companies for me to cover in this section of IDE. This week, I have nothing but good things to talk about. Many of you sent in some requests. Thank you for doing that.

With that said, I got a request from a reader that asked…

Hi Charles, There is a Junior Molybdenum Explorer - TTM Resources (V.TTQ). It has struck fantastic grade Mo - but the share price is going nowhere. Do I ride or slide?I appreciate your opinion, Mary

Dear Mary,

I think you’re the first person who’s ever asked me about a molybdenum explorer. And I’m glad you did.

You see, most people talk about copper, silver, gold and all the ‘popular’ metals. Meanwhile molybdenum is sitting in a corner, all alone, with no one to buy it… no one except for the two of us. Well, maybe that’s not entirely true.

This metal is used in aircraft parts, electrical contacts, industrial motors and filaments. Oh, it’s also used in missiles. I think you’ll agree that all of these things are seeing huge demand. And that’s why the price of molybdenum has been moving higher.

Mary, you found a great company here. Don’t get scared off because it hasn’t moved anywhere yet. If you talk to me or Rusty McDougal, you’ll learn that these small exploration companies often times won’t move for a year.

Meanwhile, they continue finding great deposits and adding to resources. Suddenly the investing public reads about a big find or a big company shows an interest in buying the smaller company. That’s when you make your gains.

I think you know what I’m getting at Mary. Ride this baby until you’re ten times richer.

P.S. Want to see me cover a stock?  Send an e-mail to feedback@investorsdailyedge.com

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