CNN showed a clip of Barak Obama this morning in which he said that the Gas Tax holiday is a sham because -- and I'm paraphrasing -- "every time we've tried to do that, the oil companies just raise the price to where it was with the tax."

This assertion makes very little sense to me.

If oil companies did do that, it would be a phenomenally bad idea from a marketing perspective.  It would be difficult for me to think of a pricing strategy that says "This company is run by a bunch of dicks" than that.  This is just not good marketing.  At all.

And although I do not agree with anti-trust legislation, it seems that if all the oil companies raised their prices like that, they would be at risk for prosecution under those laws.

A simple economic examination of the claim leaves me still further confused.  If oil companies did do that, it would leave them open to competition.  The other companies could just leave their prices lower and sell more gas and if they all do it, then some independent seller could do the same.

Salon has an article examining Obama's claim in more detail and it sounds like he supported a similar measure in Illinois and it actually worked. 

Despite the "gimmick" slam on Clinton, could it be that Clinton is sincerely trying to help, albeit in a very modest, and politically self-serving way? The evidence suggests that Clinton's plan might work. It also raises the question of why Obama hasn't made a similar proposal. He was certainly proud to back a gas-tax moratorium eight years ago.

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.

Posted by: Flibbertigibbet at 10:47 PM | Comments (14) | Add Comment
Category: Politickin'
Post contains 582 words, total size 4 kb.