Study: Obama-Backed Illinois Gas Tax Holiday Actually Worked

George Frost writes in 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. ...

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.

Read the full piece here.

Comments

[randyjet]

For those who want the truth about the oil price rise should go to Star-Telegram.com/ed_wallace and look at his article Thank You Bubble Boys. The FACT is that demand is down for gasoline, inventories are near record levels, refineries are running now at 80-85% capacity. World supply is has increased by 2.5% with world demand only rising to 2% with projections for the supply rising to 4% in the supply for the third quarter. Assuming a free market, any price relief given in taxes, the cut should go mostly to the consumer since supplies are very good now.
People don't know anything about the oil industry and the fact is that refineries are mandated by LAW to sell to ANY buyer who pulls up to their racks. So independent gas stations can and do get the same gas at the same price as the oil refiners. The fact is also that your local branded gas station has no control over the gas pumps for the most part. The fact is also that it is fairly easy to monitor price at the rack which is where the tax is paid since it is an ongoing process already. So it is a fact that the government can monitor how the price cut is done.

[TrollsTakeYourMedstoo]

You mean that Obama was FOR a gas tax holiday before he was against it? Wow....who knew that he was just like every other politician.

[suec03]

He says he learned from his mistake and that he is now experienced on this issue. Has Sen. Clinton admitted she made a mistake voting to authorize Pres. Bush to take military action against Iraq without seeking a further vote of Congress? What has she learned from that mistake?

[filo]

I don't care if there's a thousand experts. I'm Hilliary Clinton and I'm going to get the nomination ANY WAY I CAN. So stay the hell out of my way/.

[dumboldfarmer]

Dang, everyone I know who lives there said it didn't. And all the newspapers, TV and all...I guess you had to actually be there, huh. Hmmmmm.

[Myshkin57]

Or count 'successful' as something other than a 60% pass-through and a huge loss of state revenue. I guess it was successful for the oil companies that got another four cents per gallon in profit.

[FlowerGirl]

What an idiotic post! Elimiknating a 5% tax reduced cost by 3%. That means that the state gave 2% to the gas suppliers and the tasx payers had to pick up the 5% loss in revenue in olther taxes -- or in lost services.
Boon for the gas industry, bad for the people. Now please go sell your bridges elsewhere.

[AdamX]

Study? This is a study? Ridiculous! This is old news - Obama said it himself! And, this is a reason Obama knows IT CAN'T WORK! He learned his lesson - openly admits it. Why make this seem conspiratorial?

[mslindab]

Also missing from this argument is the consideration that a state's action has a different effect than a national one. If more people from neighboring states went to Illinois to get gas during this time, it would alter the effect. If the gas tax vacation was national, there would be no out of state crossover.

[suec03]

Although making the gas tax holiday federal would avoid the effect of out-of-state consumers choosing to purchase in the suspended tax state, the federal gas tax holiday is still a bad idea. There is still no promise the savings would be passed to consumers. The refineries can still manipulate the supply of gasoline produced, the amount of gasoline supplied to filling stations can be manipulated, and filling station operators (who are sometimes losing money on selling gas and making it up in convenience store sales) may raise the price of fuel to be able to make a few cents profit on fuel sales rather than continue taking a loss. Vehicle fuel economy must be increased to lessen demand, and US foreign policy and involvement in Iraq must change to lessen the speculative war premium that is part of the rising price of futures contracts for delivery of crude oil.

[gymrat23]

This is a BOGUS STORY. I live in Chicago, so we actually get the facts about what happened in our state over here. Yes, it did save the average driver a whopping $2.50 PER MONTH. However MILLIONS of DOLLARS of REVENUE was lost that would have been used to fund infrastructure that was much needed in the state. So, it might have saved the average driver approximately 8 cents per day, but the roads were full of potholes. So, overall the GAS TAX HOLIDAY was a FAILURE for the people of Illinois!!!

[suec03]

Think this through! Illinois could only declare a gas tax holiday for the state portion of the gas tax, while the federal gas tax stayed in place to moderate the impact. A state gas tax holiday operates in just that state, a much smaller impact on the national market for gasoline than a federal gas tax suspension. One would expect that if a state suspension of collection of gas tax lowered the price of gas, out-of-state drivers who lived adjacent to the state line would cross over to buy the cheaper gas, as some southeastern California border drivers have done buying gas in Yuma, Arizona to avoid the higher cost of special California formula gasoline. This would increase demand in those markets accessible by out-of-state drivers and bid up the price at the state's border.

An interstate trucker might time a fuel purchase to fill up in the state with cheaper diesel, rather than waiting until crossing into the next state. That again would increase demand for fuel in that state and bid the price back up. What would stop oil companies from manipulating the amount of fuel supplied to stations in the suspended-tax state, in order to bid up the sales price per gallon, to the point where that made more sense to them than the increased sales of gasoline? Would the loss of state revenue for road and bridge repair be worth the small savings?

[AjicNYC]

yeah being from chicago dosent VALIDATE your story lol

me? I am from the future and let me tell you that her plan will work and will be talked about for generations

[OriginalScreenName]

I'm from chicago as well. We already LIVED through a gas tax holiday. We know what it truly means. Nothing. It seems very ironic of you to throw away the opinion of someone who has experience living through a gas tax holiday, considering all you hillbots talk about is "Hillary's experience"

Then again, you and Hillary are peas in a pod - any one that doesn't agree with you is insignificant.

[MouthFountain]

The Hillary trolls talk smack, and the Obamabots talk to economists.

Sounds like the future alright! We are going to be two species, aren't we?

[Monsi]

The fact that you live in Chicago disqualify you as unbiassed or objective opinion.

[OriginalScreenName]

Wrong - it give us (I'm from Chicago) a more valid opinion, because we've lived through a gas tax holiday. We know what it means. It did nothing to help my pocket book.

[MouthFountain]

Biased is not a simple issue, and you fail to see link between the removal of a tax and the increase of another. As with an individual, saving a dollar when you have ten dollars in debt is not a savings, it simply requires another dollar, or two, or three to service the debt. Given Illinois debt position, the question becomes pay now or pay later.

Enjoy the superiority of your position against economists. One paper does not make a consensus. Nor does it make the issue relevant, which it is not.

I wonder what the cost of the war is and if it would be cheaper to give oil away?

[hank48188]

Maybe Obama just spends too much time promoting himself and running for office, this is his 6th election in the last 12 years. Maybe he should try paying attention to his jobs and learn some facts, very unprepared.

[OriginalScreenName]

Maybe you should start doing the critical thinking this study failed to do. And actually do the math to what it really means.

This study CONFIRMS Obama's position that Indiana voters would see next to nothing in savings.

This study also CONFIRMS that part of the money did go straight to the Oil companies, making the savings you saw 40% less if the Oil companies didn't raise prices.

This study DID NOT address the affect the Gas tax holiday had on our budget and the road repairs. THE PRIMARY REASON everyone opposes this holiday, and calls it disastrous. If they did, they would've found that are roads in Illinois are also propped up by the tolls we pay on our tollway system. There is not federal toll system that would prop up road repairs if the federal gas tax goes away.

Then again, I'm from Illinois - I don't matter in the eyes of Hillary (even though I grew up less than 30 miles away from where she did).

[Monsi]

You got that right!

[jaynevada]

Cook County Records:

Deed for the house Obama's purchased for $300k less than the asking price is from Frederic Wondisford and his wife, Sally Radovic, to the Obama's Northern Trust Company Land Trust #10209 (established as such for "confidentiality") is dated 15 June 2005. Recorded 06/21/2005 as Document #0517233010. Declared value $1,650,000.00.

Deed for vacant lot from Wondisford/Radovic to Rita M. Rezko. Deed dated 06/15/2005 and recorded 20 June 2005 as Document #0517133004. Declared value $625,000.00.

Examination of the Cook County records very clearly indicates that Rita M. Rezko conveyed entire lot to Obama's Northern Trust Company Land Trust #10209 on 11 January 2006 and recorded 16 February 2006 as Document #0604733162. Declared value $104,500.00.

Thorough and careful examination of all Cook County land records fails to locate a deed back to Rita M. Rezko from the Obama's Northern Trust Company Land Trust #10209.

There is a "wild' deed indicated from Rita M. Rezko to "5050 S. Greenwood LLC", Illinois corporation with same address as Rezmar Corporation registered to the indicted Tony Rezko.

Furthermore, Tony Rezko's registered corporation, 5050 S. Greenwood LLC, then pledges entire vacant lot in favor of a mortgage THAT IS STILL OPEN with Fifth Third Bank for $375,000.00. Document #0703357023 recorded 2 February 2007.

THUS, THE ENTIRE VACANT LOT IS TITLED TO SEN. BARACK AND MICHELLE OBAMA AND ALLOWED BY SENATOR BARACK AND MICHELLE OBAMA TO BE PLEDGED BY A TONY REZKO CORPORATION TO SECURE A LOAN.

[sharpz111]

CITED ECONOMIST IN THE SALON ARTICLE, WILLIAM J POLLEY, SAYS:

"The Wall Street Journal's Real Time Economics blog says that my comments (specifically the last sentence above) are "probably the strongest show of support available". That may be. Though I meant it to be a bit of "damning through faint praise." My criteria for good public policy is that it be well out of the neighborhood of "pointless." Still, I'll bet others would agree that the consumer might benefit a few cents, but I think it is safe to say that we stand firm in agreement that this is a bad, bad idea."

"I think it is safe to say that we stand firm in agreement that this is a bad, bad idea."

VISIT HIS ARTICLE, REFERRED TO IN THE SALON ARTICLE, HERE:
http://www.williampolley.com/blog/archives/2008/05/gas_tax_holiday.html

[BKLN]

This "gas tax holiday" happened in 2000, not 2008, not during the war in Iraq, not with the Bush economy having tanked the country and not while oil was over $120/barrel. So glad to have some context.

[mark77]

One random, unsubstantiated "study" vs. the entire profession of economists. Hmm. I wonder who to believe.

[BLinCincinnati]

So... 60% of $28, a whoping $16.80 over 98 days, or about 17 cents a day.

We'll lose $9 billion from the already horribly underfunded Highway Trust Fund. We'll lose thousands of jobs. Oil companies will pocket $3.6 billion from the deal. All so people can save $1.20 a week.

And taxing Oil companies to pay for it?!?! HAH! Even if you could get it passed, they'd just pass that tax on to us by raising the price right back to where it was, if not higher.

[CalVoter]

Some folks have to drive hundreds of miles every week, commuting, delivering goods, and just living life. They could wind up saving a couple hundred dollars over the tax break, but like Obam, you're out of touch with those people. Some folks could really use even $5 -$10 a week to help make ends meet, but like Obama, you're out of touch with those people.

Sen. Obama says this is not the solution to the crisis. Major DUH! moment there. You know who else says it? Sen. Clinton. She is offering ths not as a total solution, but as some much needed relief for America's citizens.

Senator McCain's plan now, and the plan Obama backed (but didn't come up with) then fail(ed) to recapture the lost tax income. Sen. Clinton's plan does not lose us $9 bill, because she puts the onus on the oil comanies. If they dare to pass it back, watch out when she's president!

Let's recap the vote on this issue: Senator McCain - votes Yes for relief for american drivers. Senator Clinton - votes Yes for relief for american drivers. Senator Obama - Votes PRESENT. What a wimp.

[MouthFountain]

Like all economic systems, you are simply willing to trade your comfort for another's, who you are out of touch with. I wonder who's pain will be worse? Your 17 cents a day, or the construction workers salary?

Hmmm. Smells like logic!

[DesertLight]

Footnote: See James Carville for further comments.

[Calinative]

This gas tax holiday would cost everyone more in the end. It is shameless pandering.
That tax pays for road construction and repair. Suspend the tax and you put thousands of people who repair the roads out of work. Then the roads fall apart, and we have to spend even more money to fix them. Consumption of gas goes up, so of course oil companies like it.
If you want relief, ask for a stable currency. Cut the nations use of oil by raising efficiency standards, that cuts the expenditure on foreign oil - shrinking the trade deficit.

Don't fall for the bait and switch. "I'll give you $300 with this hand, so you'll pay no attention to the $3 Trillion war I start with the other hand."

[Calinative]

Saving consumers a few pennies at the pump is missing the forest for the trees.

We've got $500 Billion a year flying out the door of the US economy in what we spend on foreign oil. That is the issue, and the real problem that needs fixing.

[JadedAggie]

Cutting taxes by 5% with having 3% go to consumers and 2% going to oil companies is not good policy. Furthermore this occurred on the state level where the supply curve can shift from the tax cut. On the federal level our supply curve will remain stagnant meaning even less of the tax cut will be passed along to consumers. Economists aren't against this measure because they feel the cut is too small, but because they don't feel it efficiently works to give relief to consumers. Most of us have arrived at models that range from a rise in gas prices to a decline of 3%. My own models show the price of unleaded gasoline falling 4 cents a gallon with 14.4 cents being split between various companies involved in a supply. The only consumer side group that seems to get a larger than negligible benefit are truckers, whom would benefit more from a more targeted relief measure.

I also would take significant issue with the study being cited. The economists within that study failed to take into account the effect on supply the tax cut in Illinois and Indiana would have on surrounding states. You see when the tax cut was made supply shifted to the two states that no longer had a gas tax. This shifted gasoline supplies out of the surrounding states RAISING their prices.