GOP tax rebate plan called costly, ineffective

While mailing out billions of dollars in cash would offset some of the economic pain of higher gas prices, few people would argue the economy needs much of a boost, right now. The government reported Friday that the economy grew at a 4.8 percent rate in the first quarter, its fastest pace in two and a half years.

The economy is expected to slow later in the year, but Federal Reserve Chairman Ben Bernanke said in congressional testimony Thursday that "the prospects for maintaining economic growth at a solid pace in the period ahead appear good."

Even with the price of oil at more than $70 a barrel, compared with about $44 a year ago, the impact on the economy is muted because energy costs are a relatively small part of the $11 trillion U.S. economy. The rising cost of energy is likely to slow growth by "a couple of tenths" of a percent over the next two years by cutting into consumer spending, said Bernanke.

"I don’t think the economy needs goosing," said Berthoud. "If you you want to increase economic results over the long term, you should reduce marginal tax rates and reduce the disincentives the government is placing on people working and investing."

Economists generally say there is little Congress or Bush can do in the short term to affect energy consumption that market forces are not already doing.

"In the short term, you're pretty much stuck with the price of oil and gas as it is," said Ian Parry, senior fellow at Resources for the Future, a non-partisan Washington think tank. "Over the longer term you can take steps to try to reduce your dependence on oil by promoting higher fuel economy, … but there is a very limited scope in the short run."

Energy demand is highly "inelastic" over the short term, he said, meaning that consumers respond only slightly to price changes. Over the longer term of three to five years, however, consumers do respond, changing their behavior by driving less or buying more fuel-efficient cars.

Congress could encourage conservation by raising taxes on gasoline, he said, in effect offsetting "the adverse side effects cost to society of driving," including time lost to traffic congestion, wear and tear on roads, and the health burden of air pollution.

Kurt Van Dender, an economist at the University of California at Irvine, said that at current gas prices increased taxes might not be needed to reduce consumption.

In any case, "Americans would probably lynch the politician who first breathed the idea" of a higher gas tax, said Taylor of Cato. "And rightly so, in my opinion."

He agreed that higher taxes would be the most efficient way to reduce energy consumption. But he questioned how the government would presume to know the proper level of energy consumption and suggested that market forces would do a better job of encouraging conservation and developing new energy technologies.

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