Posted by Squeegee on May 06, 2008 at 00:04:29:
In Reply to: It's only 30-40 dollars...? posted by Captain Gary on May 05, 2008 at 13:16:29:
If you would be saving 30-40 bucks a week or even a month, you must be driving a gas guzzling Hummer or pulling a 40' trailer and driving mega miles a day. If this gas tax holiday is promoting that kind of excess, then I wonder who is out of "sink". It just isn't as sweet and simple as Clinton and McCain would have you believe. (btw, nearly a nickle of that federal tax was added by Bill Clinton in his first year in office. He wanted to make it much higher but that was all Congress would allow and it helped cost the Democrats control of Congress.) The following from the Washington Post explains the issue quite well.
Both John McCain and Hillary Clinton have called for a "gas tax holiday" this summer to offer commuters and vacationers some release from spiraling gas prices. They have urged Congress to suspend the 18.4 cent federal gas tax and 24.4 cent diesel tax between Memorial Day and Labor Day, a step that could cost the government about $10 billion in revenues. The only major candidate to oppose the idea is Barack Obama, who voted for a similar measure in Illinois eight years ago. Obama now says that consumers will derive little benefit from the tax moratorium. So who is right?
The Facts
When gas prices hit a shocking $2 a gallon in Illinois in the summer of 2000, politicians demanded action. As a Democratic state senator, Obama joined other lawmakers in pushing through a six-month suspension in the state's 5 percent sales tax on gasoline. While there was some talk about making the moratorium permanent, the tax was reinstated in January 2001, after Illinois Gov. George Ryan told lawmakers that the state could not afford to continue the tax break.
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."
Some economists say that a nationwide "gas tax holiday" would have even less impact on gas prices than temporary state moratoriums, such as the one passed by Illinois in 2000. "It's basic economics," said Leonard Burman, director of the Tax Policy Center, a non-partisan thinktank. "Gas is always in very short supply during the summer, which is why prices go up. In order to reduce the price, you would have to increase supply, but that is difficult over the short term, because the refineries cannot add capacity."
James Hamilton, professor of economics at the University of California at 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.
The Pinocchio Test
The advocates of a "gas tax holiday" are exaggerating the benefits to consumers from their proposal. If the Illinois experience is a guide, there is likely to be some reduction in the price of gas, but it would fall well short of the size of the tax reduction. In order to pay for the tax cut, the government would have to cut back on highway construction and maintenance or find some other way of plugging the shortfall in revenues to the Highway Trust Fund.
and this:
Former Clinton labor secretary, and now Obama supporter, Robert Reich, asks some Clinton economic advisers about her comments this morning:
When asked this morning by ABC News' George Stephanopoulos if she could name a single economist who backs her call for a gas tax holiday this summer, HRC said "I'm not going to put my lot in with economists."
Reich: I know several of the economists who have been advising Senator Clinton, so I phoned them right after I heard this. I reached two of them. One hadn't heard her remark and said he couldn't believe she'd say it. The other had heard it and shrugged it off as "politics as usual."
That's the problem: Politics as usual.
The gas tax holiday is small potatoes relative to everything else. But it's so economically stupid (it would increase demand for gas and cause prices to rise, eliminating any benefit to consumers while costing the Treasury more than $9 billion, and generate more pollution) and silly (even if she won, HRC won't be president this summer) is worrisome. That HRC now says she doesn't care what economists think is even more troubling.