May 06, 2008

Say What?

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.

Now, why is Barak Obama being so contrary?

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

1 My guess is that he might be a bigger double talker than Clinton is. And he is just beginning his career. To think we will spend years with this man's sanctimonious baloney.

Posted by: Andrew Baker at May 06, 2008 11:08 PM (FePMz)

2 OPEC didn't change output when these discounts were made available. To keep an artificial price cut in place would have meant exhausting the available oil -- no different than when Carter set price caps and the US experienced rationing and gas lines around the block.

Cutting taxes on fuel was a good idea. If it had been permanent, the larger margins would have given the oil companies still more incentive to negotiate for additional oil. Alternatively, it would have made them willing to find more expensive sources of oil. But it was a temporary reduction, so it just went to profit.

Posted by: Brian at May 07, 2008 07:14 AM (MXEOG)

3 What did?  When?

Posted by: Flibbert at May 07, 2008 12:30 PM (ErOeR)


are you aware that obama has only spent 2 years in the u.s. senate?

remember he said he will surround himself with experts - sounds Bush-ish

so of course more than half the things he says doesn't have a thing of support under it.

ask him how he will fix the economy or healthcare and his answer is vague.

i don't understand why many people have fallen for this.

i'm leaning towards mccain if obama is the democratic nominee. i don't think mccain will be like bush. but i will not support someone who speaks nice words and cannot back them up and has very little legislature, if any, under his belt.

so his statement is an empty statement to me.

the republicans will have a great time going against him.

romney spoke with cnn this morning and he said that clinton is a more formidable opponent. that she is flawed, but that obama is much more flawed. he didn't go on further. i believe 'cause they are awaiting for obama to actually get the nomination.

Posted by: roberto M at May 07, 2008 12:37 PM (OquT/)

5 Actually, gas tax holiday may be a dumb idea. Robert Love has a collection of quotes on it:
And he has donated to McCain campaign. It remains true that the gas tax holiday is pure pandering.

Posted by: Pete Zaitcev at May 07, 2008 01:29 PM (qNSKg)

6 Oh, definitely.  The proposal is most certainly pandering.

Posted by: Flibbertigibbet at May 07, 2008 04:53 PM (ErOeR)

7 I just read that post from the economist and the problem is not supply.  We have lots and lots of oil readily available.  One of the big complaints some people have is that some oil is being diverted to emergency reserves and unnaturally constraining the amount available to consumers.

Posted by: Flibbertigibbet at May 07, 2008 04:55 PM (ErOeR)

8 I also question the assertion that consumption will increase with the removal of the gas tax.  We haven't seen a significant drop-off in consumption from rising prices, so I doubt that the market is flexible enough to respond dramatically to a 17 cent decrease in price.

Posted by: Flibbertigibbet at May 07, 2008 04:56 PM (ErOeR)

9 Everything you wanted to know about oil and gas markets:

American Petroleum Institute reports

"U.S refineries continued to churn out record amounts of gasoline and distillate....  At the same time, domestic crude oil production averaged 5.07 million barrels a day, down 3.2 percent from a year ago and nearly 22 percent below a decade ago."

From the monthly statistical report news release.  This might help bring some perspective to the issue.

Posted by: Marnee at May 09, 2008 03:51 PM (/lqv4)

10 Oh and here is a breakdown of federal and state fuel taxes.


Posted by: Marnee at May 09, 2008 03:53 PM (/lqv4)

11 Ooo oo there is more:  here are some facts on fuel. 

Posted by: Marnee at May 09, 2008 03:55 PM (/lqv4)


so now the Senate voted to stop filling the reserve for six months as an effort to bring gas prices down...

Posted by: roberto M at May 13, 2008 03:52 PM (OquT/)

13 At least that effort makes a little bit of sense.  Too bad they won't vote to bring US oil production back up to where it was in the 70's or 80's.

Posted by: Flibbert at May 13, 2008 11:26 PM (MZcHr)


yeah, but bush is against it.

how much will we actually save? a few pennies per gallon? will it make that much of a difference in people's pockets?

all it does is have more oil for the world's supply, not just u.s.

my guess is it may be less than the holiday free fed tax on gas.

Posted by: roberto M at May 14, 2008 11:16 AM (OquT/)

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