It Would Be a Gas If Trump Took the Fast Lane and Eliminated the Gas Tax

Every few years, when gas prices get high enough to be politically dangerous, politicians "discover" the idea of a gas tax holiday. Senator John McCain proposed it in 2008, President Joe Biden in 2022, and now President Donald Trump this week. It is peculiar to have politicians tacitly admit that high taxes harm consumers, but I will set aside that irony. Nevertheless, it does set an uncomfortable question: If temporarily suspending the tax would help consumers, why should the tax exist in the first place?

After all, nobody proposes a hiatus from something that is harmless or helpful. The very existence of multiple calls for a gas tax holiday should give us good reason to pause. Much like emergency waivers of the Jones Act after natural disasters, gas tax holidays inadvertently expose the hidden costs of a policy that politicians generally insist is reasonable. 

Before delving into issues about the gas tax, it would be worth noting that the gas tax is 18.4 cents per gallon, which will not do that much to alleviate the average cost of a gallon, which is $4.50. Now let's get into the main issue of its regressive nature, meaning that it takes a larger share of income from lower-income households than from higher-income ones. That is hardly a surprise for a consumption tax tied to a necessity like transportation fuel. For many Americans, driving is a price of participating in the labor market. 

The burden is uneven because transportation is not evenly substitutable. Higher-income households are more likely to have flexible work arrangements, shorter commutes, and/or access to multiple modes of transportation. Conversely, lower-income households are more likely to rely on older vehicles, need to take longer commutes, and have jobs that require physical presence. Rural commuters similarly have constraints, whether with longer baseline distances or fewer substitutes for automobile travel. 

The broader economic problems with the gas tax are longstanding. I previously examined its inefficiencies in detail, including its distortion of transportation choices, weak alignment with actual road usage, and broader market-side effects. Much like the Cato Institute argues, this is why state governments should  meet their infrastructure needs instead of the federal government.

The recurring gas tax holiday debate implicitly admits that the tax is burdensome. The question should be what to replace the federal gas tax with. States could implement their own, especially since most roads are not federally owned. But greater fuel efficiency and higher prevalence of electric vehicles is making the gas tax more passé. There is the option of mile-based user fees, as well as a "quant" framework that accounts for usage. Regardless of what it is replaced with, one thing is for certain: it is difficult to call a gas tax "necessary infrastructure funding" when it regularly needs a vacation to survive public opinion. 

You Can't Deport Supply and Demand: How ICE Enforcement Contributes to Labor Shortages

For years, advocates of mass deportation insisted that aggressive immigration enforcement would strengthen the economy and help natives born in the U.S. find a job. The theory is that you remove enough workers, somehow businesses, customers, and local economies adjust without any pain. Beyond this political rhetoric begs an important empirical question: what actually happens to labor markets when Immigrant and Custom Enforcement (ICE) enforcement increases? Is ICE actually making the labor market better? A recent paper from the National Economic Bureau of Research (NBER) using data from areas affected by immigration raids and related enforcement policies. 

Instead of relying on simple "before-and-after" comparisons, the author of this NBER paper use regional differences in ICE enforcement to examine how labor market outcomes diverged over time. One of the big conclusions is that greater ICE enforcement led to less employment for undocumented workers. But the effects did not stop there. The study found little evidence that this enforcement helped native workers. Meanwhile, businesses with immigrant-heavy sectors experienced labor shortages and operational disruption. The fact that this study compared changes across regions, as opposed to simple national trends, provides a stronger analysis than a basic correlation analysis.  

Broader economic literature on immigration explains why this NBER study's findings are unsurprising. Despite the political rhetoric of immigrants taking jobs from native-born workers, economists have found very little evidence that immigration substantially reduces native employment overall. If that claim were true, we would have seen ICE enforcement generate clear increases in employment opportunities for native workers. Yet no such clear increase emerged in the study. As a matter of fact, the study points toward labor-market disruption and spillover effects. 

That is because the economy is not a fixed pie. Economic literature already indicates that immigrants are often complements rather than simple substitutes for native labor. In industries such as housing construction, hospitality, agriculture, and food processing, different categories of workers frequently depend on one another to maintain production. Removing that part of the workforce can and does reduce productivity and labor demand elsewhere in the economy. 

There is also evidence that immigrant workers can increase wages for native workers. That is because immigrants are not only workers competing for jobs. They are also consumers, renters, entrepreneurs, and customers. When policymakers treat the labor market like a fixed pie, they ignore this high level of interconnectedness. 

It is that level of interdependence that makes these findings unexpected. Large-scale immigration enforcement acts as a supply shock. That shock propagates throughout supply chains and affects firms, consumers, and workers beyond the targeted population of the mass deportation. The fact that the pro-mass deportation argument is based in a simplistic view of the economy is part of why I was against mass deportation in 2024. 

None of this determines the question of how much immigration enforcement is appropriate. What it does show is that mass deportation is not costless or uniformly beneficial. While "deport them and it will work out" is a snazzy political slogan, it still does not repeal arithmetic or basic laws of economics.

Grounded by Government: How Blocking a Merger Helped Sink Spirit Airlines

Last Saturday, Spirit Airlines announced that it is shutting down its doors. Some were treating this bankruptcy as if it came out of nowhere or it were simply an issue of a poor business model. It is true that there are businesses that go under because they made poor life choices. With Spirit, however, the beginning of its demise was made with a key decision well before last Saturday. 

The earlier decision did not happen in Spirit Airlines' boardroom or from the fact that Trump decided not to bail out Spirit (which would have been a terrible idea), but in Washington. Starting in 2022, Spirit Airlines and JetBlue attempted to merge. But Senator Elizabeth Warren (D-MA) wouldn't have any of that. She led the charge that would ultimately block the merger in 2024. The argument used was that Spirit needed to remain independent to maintain a competitive market in what a concentrated market. 

Warren thought she was helping Spirit, but was in fact hurting it. Why? Because she had a static view of how the market worked. She thought the main factor for competition was the number of firms. But in a capital-intensive market like the airline market, there are times when mergers can help make the market more competitive. 

When firms are structurally fragile as was the case with Spirit, consolidation can be a way to stabilize capacity, preserve service networks, and sustain price discipline over time. By focusing on firm count instead of capacity (e.g., routes, seats, financial viability), the policy gave the appearance of preserving competition. In practice, Spirit and JetBlue were less equipped to compete in the market while further solidifying the market concentration of the big four airlines: American, Delta, Southwest, and United.

If Spirit and JetBlue were able to merge, they would have created a larger and more financially resilient airline in the low-cost segment of the market. In industries like aviation, fixed costs are high and margins are thin. Scale can be the difference between restructuring to grow and failure. But Spirit and JetBlue were not given that opportunity to become a strong mid-tier competitor. 

Spirit's employee count went from 11,331 employees in 2024 to 7,482 employees in 2025 before it went under. That decline reflects more than normal business cycles. It signals a firm in financial distress heading toward bankruptcy that could have been saved had it had the chance to merge. As Spirit's revenue weakened and restructuring pressures mounted, the airline reduced capacity, scaled back operations, and cut labor costs to stay afloat. Yet that was not enough to save Spirit. 

While Spirit's ultimate demise is the most visible part of this unnecessary demise, the effects on JetBlue are still important. Without the merger, JetBlue was unable to expand. It remained in a constrained capacity focused on cost constraints and modest route expansion. In a capital-intensive industry, the absence of economies of scale shaped JetBlue's long-term competitiveness. 

These firm-level decisions also made their way downstream. Changes in route activity affect airport activity, especially those who relied on these low-cost routes. Tourism flows are expected to feel a hit, especially those leisure-heavy destinations. This all affects airport revenue, local travel demand, and the availability of affordable travel destinations for travelers. 

There is a broader lesson to be had. Look at Dodd-Frank's "too big to fail" approach. It was supposed preserve competition and market stability. Instead, smaller banks exited at larger rates, the number of new banks declined substantially, and larger banks increased their market share through consolidation. Instead of playing by the regulators' rules, markets adapt in a way that often benefits that largest market players. In retail and tech, the government had similar impulses of "the size of the firm matters" when blocking the Albertsons-Kroger merger and scrutinizing whether Amazon was a monopoly. 

The airline industry was no exception. Spirit and JetBlue had a chance to be a better contender in the airlines market. Instead, the government stepped in to help in the name of "market protection" and ended up making the market less competitive. The deeper question is whether this "government knows best" model can meaningfully help if they misread the dynamic, evolving nature of markets. In case we did not have enough examples, Spirit Airlines is another casualty to remind us that the answer to that question is a resounding "No!"

Hotter Doesn't Always Mean Worse: The Value of Healthy Skepticism Towards Climate Change Activism

A senior fellow from the American Enterprise Institute, Roger Pielke Jr., took aim at climate change economics. It was not enough for Pielke to point to a redacted paper that claimed doing nothing with climate change would cause a whopping $38 trillion in damage. Keep in mind that this paper was quite influential in climate change policy, much like Neil Ferguson's COVID lockdown model was an abject failure. Pielke pointed out a recent study from the University of Wyoming entitled The Empirically Inscrutable Climate-Economy Relationship.

Why does this new study come with an inconvenient truth? Most climate change activists do not simply say that global temperatures are increasing. They posit that each increase in global temperature means that it will produce immeasurable harm. It is from this assumption that you get policy suggestions like Net Zero or the Paris Agreement. A lot of climate change modeling translates temperature into dollar losses. The problem, as this new study details, is that it is based on shaky ground. 

There are countries out there that have similar temperatures and affluences. The authors point to El Salvador and Iraq as examples to remind us that there are a number of confounding factors that influence economic growth beyond temperature: institutions, education, technology, trade, and culture. Certain adaptations also change the relationship to heat, including air conditioning, crop switching, migration, and infrastructure changes. It means climate change scientists are trying to estimate a moving target, not a stable law. 

This does not even get into the fact that reliable economic data goes back only a few decades, especially for more developing countries. The problem is not only with imperfect data. It is impossible to isolate temperature as the sole factor, which makes the house of climate change economics built on quicksand. 

Is this to say that climate change is a hoax? No, it does not. To quote Mercatus Center scholar Jack Salmon, "they [the authors of the study] are not claiming that climate change is harmless or that reducing emissions lacks value. The existence of a negative carbon eternality remains well-established. What they are challenging is the confidence with which economists, and especially policymakers, treat specific numerical estimates of climate change."

Good policy is supposed to weigh the costs and benefits. However, if the benefits of avoided damage is highly uncertain, model-dependent, and sensitive to assumptions, as is the case with climate change economics, then you cannot reliably say that a given policy is worthwhile. 

Does it sound familiar? We dealt with this during the COVID pandemic. Lockdown Lovers kept forcing lockdowns down our throats during the pandemic. They claimed that skepticism of the lockdowns meant that you wanted Granny dead. How did that weaponization of kindness turn out? You can read more here, but it meant trillions in economic damage, causing even more health problems than the lockdown solved, and helping society writ large take a nosedive. 

What does that mean for climate policy? If this core relationship between temperature and economic output is fragile, then the foundation for confident, large-scale climate policy like carbon taxes, cap-and-trade, or energy-efficiency mandates is tenuous. 

This does not mean we should do nothing. It means getting off the moral high horse and stopping virtue-signaling the fake certainty. It means injecting a little humility into the conversation. After all, we have seen this movie play out with the COVID pandemic. Uncertain models get translated into certain policy prescriptions, dissent gets quashed, and tradeoffs get shunted to the side because it is too inconvenient to address. 

The sad irony is that the more uncertain the underlying assumptions become, the more confident climate change activists come in with sweeping mandates and regulations. What emerges is not better policy, but simply more confidence where it becomes less and less defensible. But don't worry. We're still told to "follow the science."

Why Trump's $500M Bailout of Spirit Airlines Won't Make Air Travel Great Again

Flying Spirit Airlines has come with the philosophy of "you get the lowest fare possible, and everything else costs extra." That is not merely a pricing model. Apparently, it has been the government's way of doing business lately. The government promises it won't cost that much, it hides the true costs, and when the system fails (as it often does), tack on extra costs in the form of subsidies, tax credits, bailouts, and "emergency" spending. President Trump's proposal to bail out Spirit Airlines is not an anomaly. It would be another line item in a very long balance sheet of the U.S. federal government. 

I think the first point to mention is that we would not be in this mess if the government did not intervene in the first place. Spirit Airlines was looking to merge with Jet Blue in 2024. But guess what happened? The Biden administration led the initiative to ultimately block the merger. American Action Forum President Douglas Holtz-Eakin said that there were already private-sector solutions of mergers or bankruptcy. A bailout is not necessary. 

More than being unnecessary, it harms the airline industry. As Competitive Enterprise Institute Director of Technology & Innovation Jessica Melugin reminds us, blocking the merger of smaller competitors to scale up when the industry is dominated by four major airlines makes little sense. CEI Policy Analyst Steve Swedberg details how the airline industry is suffering from a lack of competition and how competition helps keep the airline industry thriving instead of stagnating. All this bailout would do is have the airline industry flounder while making sure the Big Four (Delta, American, United, and Southwest) maintain their 70-plus-percent market share over the industry. 

As Holtz-Eakin is right to mention, this is reminiscent of the Soviet Union. Trump is using the power of the state to allocate capital. It does not take much imagination to see how political interference could get in the way of Spirit's management and operational decisions. 

Senior Fellow John Berlau points out, this sort of bailout creates a moral hazard because it incentivizes companies like Spirit Airlines to take excessive risks. Why should the taxpayers have to pay to bail out a failing airline, especially when there are other remedies available? This won't stop at Spirit. As a matter of fact, Frontier and Avelo are already seeking $2.5 billion in bailouts, as well. 

Cato Institute policy scholar Ted DeHaven illustrates how the Defense Production Act (DPA) angle to provide this Spirit bailout borders on the absurd. DPA is aimed at reducing shortfalls in goods essential to national defense. This is the Trump administration pursuing a bailout under the guise of bailouts, much like it has pursued tariffs on trucks and furniture under a flimsy national security argument. At least with other bailouts that I did not agree with, there was at least an argument of systemic risk. There is no such pretext. It is simply a first step towards greater nationalization of the airline industry. 

Strip away the rhetoric and the proposal is hard to justify on any grounds. The government creates the conditions for Spirit's instability, blocks private-sector measures to remedy it, and comes in to "fix" the problem that it caused in the first place. This decision distorts competitive markets, rewards risky behavior, and invites a litany of companies to beg for a handout and corporate welfare in the name of "national security." 

The bailout is not a solution. It merely masks an issue while expecting the taxpayers to clean up the mess. If a company is not doing well, it should be allowed to fail. If it wants to stay alive, that is what bankruptcy, restructuring, and acquisition are there for. The state is blocking voluntary exchange while preventing firms from adapting. It is a sober reminder that it does not matter who is in the White House. The underlying hubristic assumption is the same: the government can outguess the markets and improve upon an economic system that is second to none. 

Spirit Airlines has to earn your business. If it succumbs to incompetence, at least it costs them customers. It is worse with government because Spirit Airlines at least asks for your consent before charging you. Washington just reaches deeper in your wallet, keeps billing you for inane ideas like bailing out Spirit Airlines, and calls it reform. What ever happened to making airlines great again? 

Trump's Tomato Tax: A Tariff With Predictable Outcomes

If your grocery bill is higher than usual, one place to look is tomatoes. The price of tomatoes is up 23 percent compared to last year (see Rutgers data below). Part of that increase can be attributed to higher transportation costs or fluctuations in Florida's weather. But let's not overcomplicate this. 

The biggest change in the tomato market was not meteorological: it was policy. Last year, the U.S. changed its tariff-free policy on Mexican tomatoes and replaced it with a 17 percent tariff. When 90 percent of tomatoes come from Mexico and you tax those tomatoes, it should not be a surprise when the price of tomatoes increases. 

As a matter of fact, there were many that warned about these negative effects, myself included. It is not complicated what happened here. When the U.S. slaps tariffs on Mexican tomatoes, which is the primary source of tomatoes for the U.S., you are going to get more expensive tomatoes. Not maybe or probably. You will get more expensive tomatoes. 

Tariffs are taxes on imports. Like most taxes, they do not sit quietly in the background doing nothing. They change consumer behavior, such as having tomato imports in 2025 declined by $500 million in comparison to the previous year. The tariffs worked their way through the supply chain and made their way to the consumer, which is also not surprising since 95 percent of tariffs are paid by the consumer. 

None of this is unique to tomatoes. This is how tariffs work. When you tax imports with tariffs, you reduce supply, distort markets, and raise prices. The specifics vary by product and tariff amount, but the mechanism does not change. 

Whether it's tomatoes, steel, or washing machines, the pattern is the same: a concentrated benefit for a small group of well-connected domestic producers while everyone else pays the price. Protectionists can call that "saving jobs" all they want, but consumers experience fewer choices and higher prices. Tariffs don't protect markets. They just make them more expensive. 

Trump's Tariff Exemptions Are Harmful Protectionism with More Holes than Swiss Cheese

Tariffs have been a staple of Trump's trade policy in both of his presidential terms. When politicians propose a tariff, they make it sound like this simple tax rate because they are presented as universally applied. However, reality intervenes in the form of political discretion. As recent research from the American Action Forum (AAF) shows, that discretion creates exemptions.

AAF found that the "Liberation" Day tariffs had an exemption rate of 38 percent. With the newer Section 122 tariffs, that rate went up to 60 percent. The wider exemptions under Section 122 reduced the effective tariff rate from 14 percent to 10 percent. 

You might be wondering why I think this is a bad thing. After all, tariffs are import taxes. If the effective tax rate is lower, you would think that is better for the economy. Think again! Cato Institute trade scholar Scott Lincicome details the hellish labyrinth that tariffs have become. Tariff rates do not vary only by product. They do so by country, by statutory authority, and how multiple tariff regimes interact. 

Because Trump is trying to use multiple statutory authorities to push his tariff agenda, he has increased the number of tariff regimes in the U.S. tariff code from 3 in 2017 to 17 in 2025. More to the point, the percent of imports being subject to a tariff went from 0.02 percent in 2016 to 49.2 percent in 2025.

This has made tariff compliance a legal and logistical challenge of Herculean proportions. Rates stack inconsistently, exemptions are applied unevenly, and the rules change frequently. Tariffs become a hidden tax because firms have to devote time, hire specialists, and navigate trade uncertainty. A Federal Reserve report last year estimated that the compliance costs are the equivalent of 1.4 to 2.5 percent ad valorem tariff. Given that 95 percent of tariffs on U.S. imports are paid by the everyday American consumer, guess who is ultimately paying the brunt of those compliance costs? 

But those costs are not distributed evenly. Large firms can afford trade lawyers, customs specialists, and representation in Washington to do the rent-seeking and earn the exemptions. Smaller firms generally cannot. The asymmetry creates a divide between those who can navigate the rules and those who cannot. What is even more amusing is that the exemptions are a tacit admission from the Trump administration that tariffs are too blunt and harmful. Plus, they undermine the administration's rationales for the tariffs, particularly the rationale about generating government revenue.

While advocated for as a simple, universal tax rate, tariffs are a complex behemoth that incurs additional costs to businesses. The irony is that a policy that is presented as being straightforward ends up being a convoluted, opaque system that benefits well-connected businesses while screwing over the American people the protectionists claimed to help.