May 6, 2008

OBAMA'S WAR ON SCIENCE:

Obama is wrong about the gas tax: Think Clinton's plan to suspend the gas tax temporarily is a bad idea? A similar measure in Illinois -- which Obama backed -- seems to have helped consumers. (George Frost, May. 06, 2008, Salon)

While an Illinois state senator, Obama supported a state tax holiday very much like Clinton's proposal, but without the saving mechanism of a windfall profits tax.

CBS News says Obama voted for the temporary lifting of the tax three times in the state Senate. The tax holiday was finally approved during a special session in June of 2000, when Illinois motorists were furious that gas prices had just topped $2 a gallon in Chicago. The moratorium lifted the state's 5 percent sales tax on gasoline through the end of 2000.

Obama told constituents that gasoline prices would drop: "Gas retailers must post on each pump a statement that indicates that the state tax has been suspended and that this temporary elimination of the tax should be reflected in the price per gallon of gas."

During one state Senate floor debate, Obama joked that he wanted signs on gas pumps in his district to say, "Senator Obama reduced your gasoline prices."

Now, running for president, Obama says the tax reduction was a complete failure, and that "the oil companies, the retailers" ended up benefiting most because they raised prices by the entire amount of the tax cut.

"I voted for it, and then six months later we took a look, and consumers had not benefited at all," Obama said. Having learned this hard economics lesson from his Illinois "mistake," Obama now argues that a federal tax holiday also will fail for the same reason -- the oil companies will take it all.

But Obama is wrong. He did not learn this lesson. In fact, the only scientific study done on the pass-through of the tax holiday savings to Illinois consumers (and those in Indiana, as well, whose citizens enjoyed a similar holiday) found that it actually worked to a large extent.

The study is titled "$2.00 Gas! Studying the Effects of a Gas Tax Moratorium," by Joseph J. Doyle Jr. and Krislert Samphantharak. Download the PDF here. The authors concluded that "the suspension of the 5% sales tax led to decreases in retail prices of 3% compared to neighboring states. And when the tax was reinstated, retail prices rose by roughly 4%."

This suggests that the tax holiday delivered at least 60 percent of the tax savings to motorists.


It's an even worse idea because it works.

Posted by Orrin Judd at May 6, 2008 2:06 PM
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