Obama Says Illinois' Gas Tax Holiday Didn't Work

Lawmakers in Florida and Missouri are giving some thought to a gas tax holiday — something state senators in New York have already voted to do. Presidential hopeful Barack Obama opposes lifting the federal gas tax, in part because of his own experience in the Illinois state legislature. He accuses rival presidential contenders Hillary Clinton and John McCain of pandering by suggesting a suspension of the federal gas tax this summer.

Even though gas prices did fall when Illinois lifted its tax, it isn't clear whether the policy really helped consumers. Ralph Martire, executive director of the Center for Tax and Budget Accountability, says wholesale gas prices were falling even faster, and gasoline marketers simply kept the difference.

"These companies basically took what would have been paid as gas tax and pocketed it as profit. And that's one of the inefficiencies you get when you rely on the private sector to pass along a tax break: They have a profit motive and they're going to use that motive," Martire says.

That finding was echoed by the National Bureau of Economic Research, which found that 5 percent tax cuts in Illinois and Indiana resulted in only a 3 percent drop in retail gasoline prices.

One other lesson from the Illinois experiment is that as prices fell that summer and fall, drivers bought more gasoline. Obama said on NBC's Meet the Press last weekend that the U.S. needs to do just the opposite, if it wants to lower gas prices in the long run.

"If Sen. Clinton or John McCain had stood up in previous years for increases in fuel efficiency standards, in getting serious about an energy policy that is freeing us from dependence on foreign oil, then we would not be in this same situation in the first place," Obama said.

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