Obama… Wrong About the Gas Tax

Barack Obama is wrong about the Gas Tax, his criticism of Hillary Clinton’s Gas Tax proposal and he’s a hypocrite. George Frost explains on Salon:

Democratic presidential candidate Barack Obama has repeatedly accused rival Hillary Clinton of “pandering” for advocating a summer gas-tax moratorium, calling it a “classic Washington gimmick” that would do little to help consumers.

“That’s typical of how Washington works,” Obama says in a new TV ad airing in Indiana, where primary voters go to the polls Tuesday. “There’s a problem. Everybody’s upset about gas prices. Let’s find some short-term quick fix that we can say we did something even though … we’re not really doing anything.”

Obama dismisses Clinton’s proposal to suspend the 18.4 cent per gallon federal gas tax as: 1) a political gimmick that will not deliver any significant relief to consumers, while diverting us from the serious energy reforms we need to undertake; 2) an opportunity for oil companies to raise prices to capture the missing tax increment; 3) an inducement to drivers to drive more, thus leading to more consumption and higher prices down the road; and 4) a drain on highway trust funding, which is sorely needed to repair our crumbling infrastructure.

This is powerful criticism because it resonates with a long-standing talking point against Clinton — that she is a political phony willing to do anything to get elected.

But, who really is the candidate who will “do anything to get elected”? Because in the case of the Gas Tax and Obama’s criticism, “each of Obama’s attack lines is either factually incorrect, or based on flawed logic.”

Could he be attacking Clinton just to deny her any political benefit? That would be as cynical and “old style” as anything Clinton has thrown at Obama lately.

Now here’s the hypocrisy angle:

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, Obama is flip-flopping… yes, flip-flopping on the Gas Tax. Now that he’s running for president, Barack Obama claims “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.” And he’s wrong…

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.

Frost goes on to explain that “under Clinton’s plan, if properly implemented, any additional profit realized by an oil company by passing on the cost of the windfall profits tax to customers would also be subject to the tax.”

This means a dollar passed through to consumers to offset the tax would appear as profit … and be taxed.

How to enforce this? Make it against the law for oil companies to pass the price of the windfall profits tax on to consumers, and then audit the oil companies’ books. It is not a difficult accounting exercise to tax excess profits above a certain gross percentage per barrel of oil, or gallon of gas. Every major oil company has sophisticated profit segmentation reports that go to the very senior management of the company. These reports identify revenues, costs and profit at each level of the vertically integrated operation, broken down on a per barrel basis by product type, marketing region, you name it.

The oil companies also will have a powerful inducement to avoid being caught — and in this kind of toxic political environment, they may actually swallow the tax.

But it takes a little bit of courage to take them on, and a belief that we do not always have to be victims.

For a candidate that claims to be about “change,” Barack Obama seems reticent to implement a proposal that would help the American people in this mess called the Bush Economy. George Frost asks, “Obama — where is your optimism?” The “change” routine from Barack Obama, again shines through as a lot of talk but no action.

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3 Responses to Obama… Wrong About the Gas Tax

  1. Gilbert Martinez says:

    Have you heard of RamenGate?

  2. Pingback: Two Sides of His Mouth « The Krile Files

  3. Obama is right that concrete steps need to be taken to keep conservation and energy efficiency as a national priority even when, as will happen by the second year of the coming Democratic Administration, energy becomes much more affordable.

    Clinton is right when she speaks of the importance of our making a radical change in our current policy on The Strategic Petroleum Reserve.

    As for highway projects, she does advocate an extra tax on big oil to replace the Trust Fund taxes she would reduce. In general, though, there are better ways to bring down oil prices than are bein talked about.