Both Hillary Clinton and John McCain are advocating the idea of a suspension of the Federal gasoline tax during the summer driving months as a way of helping consumers deal with high gas prices.
Would it accomplish anything ?
When gasoline 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 of the state’s 5 percent sales tax on gas. While there was some talk about making the moratorium permanent, the tax was reinstated in January 2001, after then-Gov. George Ryan (R) told lawmakers the state could not afford to continue the tax break.
The moratorium proved politically popular in Illinois, but economically questionable. The Illinois Economic and Fiscal Commission estimated that the state lost $175 million in revenue during the six-month period. A subsequent study by the National Bureau of Economic Research showed that gas prices fell by an average of 3 percent while the moratorium was in effect, meaning that only 60 percent 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 professor of economics 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.”
And if it were to happen on a national level, it’s unlikely there would be any benefit at all:
Some economists say that a nationwide “gas tax holiday” would have even less impact on gas prices than a moratorium like the one passed by Illinois in 2000. “It’s basic economics,” said Len Burman, director of the Tax Policy Center, a nonpartisan think tank. “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.”
According to James Hamilton, a professor of economics at the University of California at San Diego, the benefits of a temporary tax moratorium would probably go to oil companies rather than consumers. He said 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 transferred from one state to another.
“Prices would certainly rise to the market-clearing level,” Hamilton said. “I would expect the price to go back to very close to where it was before, in which case consumers would not see any benefit.”
In other words, the gas tax holiday is a big a scam as that economic stimulus check you’re going to be getting.
May 2nd, 2008 at 10:55 am
[...] as I noted earlier this week: Some economists say that a nationwide “gas tax holiday” would have even less impact on gas [...]
May 2nd, 2008 at 12:53 pm
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May 2nd, 2008 at 1:43 pm
[...] The Gas Tax Holiday Scam Obama Is Right: The Gas-Tax Holiday Idea Is A Phony, Pandering Scam Hillary Clinton Panders At The Gas Pump How Much Would You Actually Save If The Federal Gas Tax Was Suspended For The Summer ? Obama Responds To Hillary’s Gas Tax Ad More On The Gas Tax Holiday Scam Hillary Clinton Continues To Demagogue The Gas Tax Holiday The Gas Tax Holiday: Political Pandering And Economic Stupidity In One Convenient Package Bloomberg On The Gas Tax Holiday: The Dumbest Idea I’ve Heard In A Long Time [link] [...]
May 5th, 2008 at 12:27 pm
[...] The Gas Tax Holiday Scam Obama Is Right: The Gas-Tax Holiday Idea Is A Phony, Pandering Scam Hillary Clinton Panders At The Gas Pump How Much Would You Actually Save If The Federal Gas Tax Was Suspended For The Summer ? Obama Responds To Hillary’s Gas Tax Ad More On The Gas Tax Holiday Scam Hillary Clinton Continues To Demagogue The Gas Tax Holiday The Gas Tax Holiday: Political Pandering And Economic Stupidity In One Convenient Package Bloomberg On The Gas Tax Holiday: The Dumbest Idea I’ve Heard In A Long Time The Gas Tax Holiday: Does Anyone Really Think This Is A Good Idea ? [link] [...]
May 6th, 2008 at 9:36 am
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June 9th, 2008 at 3:23 pm
[...] I noted more than once —- see here, here, here, here, and here —- the absurdity of the idea that suspending an 18-cent per [...]