Archive for May 6th, 2008

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Why Obama, Part VIII: Gas Prices

May 6, 2008

I know it’s been a little while since I added another installment to my “Why Obama” series, so I figured that with all the talk here in the Chamber about those obscene gas prices lately it was as good a time as any to highlight the issue. 

There’s been quite a bit of debate over this (with good reason), and a lot of attention has been paid to the fact that Obama is departing from McCain and Clinton with regards to suspending the 18-cent federal gas tax for the summer.  I know that when I first heard about it, my initial reaction was that it was a gimmick and wouldn’t really save people that much.  Of course, I’m no economist, so…

Luckily, the economists have weighed in, as the Obama campaign posted on the “fact-check” portion of the website:

Washington Post Fact Checker: Temporary Illinois Gas Tax Holiday Showed that Economic Benefit Was Minimal and the Majority of Consumers Didn’t Feel They Were Paying Less. “The gas tax moratorium proved politically popular in Illinois, but economically questionable. The Illinois Economic and Fiscal Commission estimated that the state lost $175 million in revenues during the six-month period. A subsequent study by the National Bureau of Economic Research showed that gas prices fell by 3 percent, meaning that only three fifths of the savings from reduced taxes was passed on to consumers. “It turned out to have a pretty small effect,” said Joseph Doyle, an assistant economics professor at the Massachusetts Institute of Technology. “Consumers were slightly better off, but the benefits were spread very thinly, and the government was a lot worse off.” A poll by the Chicago Tribune showed that only 28 percent of motorists believed that they were actually paying less for gas as a result of the temporary suspension of the tax. Obama has changed his mind dramatically on the tax cut since voting for it back in 2000 in Illinois. On the campaign trail Monday in North Carolina, he described the proposal as a “short-term quick fix that we can say we did something even though we’re not really doing anything.” [Washington Post Fact Checker, 4/29/08]

Economists Agree: Most Savings from Gas Tax Holiday Are Passed on to Producers, Not Consumers. “James Hamilton, professor of Economics at the University of California-San Diego, said that most of the benefits from a temporary tax moratorium would likely go to producers rather than consumers. He said that states that suspend gas taxes are able to respond to rising demand more efficiently than the country as a whole, because gasoline supplies can be easily moved from one state to another. “Prices would certainly rise to the market-clearing level,” said Hamilton. “I would expect the price [of gas] to go back to very close to where it was before [the tax cut], in which case consumers would not see any benefit.” Another economist, Jeffrey Perloff, of UC-Berkeley, agreed that a federal tax moratorium would likely have less impact on consumer gas prices than a state moratorium. He said his models showed that a suspension of the 18.4-cent federal tax on gasoline would likely result in a temporary 9 to 12 cent reduction in the cost of a gallon of gas to the consumer, with the remainder of the reduction coming in wholesale prices.” [Washington Post Fact Checker, 4/29/08]

There’s a lot more there there, but the consensus is pretty universal.  In fact, when Clinton was pressed to name a single economist that has endorsed the “tax holiday”, her response was “I’m not going to put my lot in with economists,”, which is an answer that sounded like it came from George Bush.   It kinda begs the question as to who she is putting in her lot with, if it isn’t the experts.

The bottom line here is this is a phony gimmick; an easy thing to propose in light of the current situation as an attempt to buy some votes.   Obama’s position is grounded in reality.

What Obama should do right now is take this and pivot to a reminder to everyone that there are certain easy things we as Americans could do to relieve the financial burden of gas, as long as we’re talking about pennies on the gallon:

At this stage, I’d consider it a patriotic duty to make sure my air filter is clean and my tires are inflated.   hmmm…maybe I should be running a presidential campaign?

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