Natural disasters and economic crises can often bring out the best in people. But they also have a way of bringing out the worst in politicians as typified by the way some New York state legislators have reacted to the latest series of increases gasoline prices.

Even before Hurricane Katrina, the rising price of gasoline had prompted state Senate Majority Leader Joseph Bruno to call on Congress to “investigate” oil companies. Bruno suggested “gouging” might be the real culprit�as if OPEC production quotas, limited refinery capacity, federal environmental rules, and skyrocketing global demand for petroleum products were the result of an industry conspiracy.

With the added post-Katrina spike in gas prices, some elected officials may be willing to go even further. One of Bruno’s colleagues, Sen. John Bonacic, reportedly believes the state should consider capping the price of gasoline. The Orange County Republican may be the first New York legislator�but probably won’t be the last�to publicity float this particular bad idea.

It’s Economics 101 that price controls always lead to scarcity. When government lit nits the price of a commodity below the true market level, consumers demand more than producers are willing or able to !supply. The result: long lines, reduced hours and handlettered “sorry, we’re out” signs taped over the pumps at your local Sunoco. In short, a return to the 1970s.

Not all the policy proposals inspired by the gas-price situation are as quite bad as price controls or grandstanding investigations. Bruno and his fellow Republican senators have also decided to call for a cap on the state gasoline sales taxes. This idea has at least a little merit. But it’s also more than a little ironic: After all, this is the same Legislature that has given the Empire State some of the highest fuel taxes in the nation.

In fact, the sales tax is only one of three separate state taxes on automotive gasoline in New York. The state rate of 4 percent (plus a local rate of up to 5.5 percent), imposed at the pump comes on top of an 8 cents a gallon excise tax and a petroleum business tax that amounts to just over 15 cents per gallon. All told, the average state local tax bite on gasoline sold in New York now works out to roughly 46 cents per gallon.

Capping state sales taxes on gasoline at, say, the 2004 level could save motorists a dime at the pump and $60 to $80 million a year in taxes, depending on where prices level off in the next few months. This would allow consumers to recoup only a small portion of the nearly $400 million intemporary added state sales taxes they just paid out over the past three years, thanks to the Legislature’s inability to curb spending.

Aside from tinkering with gas prices and taxes, some legislators also are advocating public hearings to explore the causes of the problem. This could represent the last best chance for state politicians to reacquaint themselves with the law of supply and demand.

A balanced, open-minded probe will reveal that the latest gas price hikes mainly result riot from gouging, but from a combination of regional, national and international market factors and forces, recently exacerbated by the hurricane’s disruption of key supply lines and refineries.

At the retail level, the overnight rise in prices after the full scope of Katrina’s devastation became apparent was merely a rational response to the expectation of higher prices and tighter supplies to come. (For similar reasons, the price of bananas and coffee may also soon rise.)

The good news is that it’s only a question of when, not if, the damage to petroleum refining and transmission facilities in the Gulf region will be repaired, ultimately bringing prices back to more normal market levels. The bad news: It could take quite a while, and “normal” is likely to remain a lot higher than we’ve been used to.

In the meantime, elected officials in New York�and elsewhere�need to get a grip.

When it comes to gas prices, tax caps aside, the best advice to legislators is probably the hardest for them to follow: Don’t just do something. Sit there.

About the Author

E.J. McMahon

Edmund J. McMahon is Empire Center's founder and a senior fellow.

Read more by E.J. McMahon

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