Fact Check: Obama and the gas taxes

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SPRINGFIELD — Democratic Sen. Barack Obama accuses his presidential rivals of pandering to voters by supporting the "gimmick" of temporarily lifting federal taxes on gasoline, despite his own past support for a similar tax holiday.

As a state legislator voting for a tax break, Obama even joked that he wanted signs on gas pumps telling motorists that he was responsible for lowering prices.

Most experts criticize the idea of a federal tax suspension, but Obama's political opponents accuse him of flip-flopping and ignoring the financial pain caused by today's rising gas prices.

THE SPIN:

Obama argues that Democratic Sen. Hillary Rodham Clinton and Republican Sen. John McCain — he calls them "the two Washington candidates" — are pandering to voters by proposing to suspend the federal gas tax of 18.4 cents a gallon for three months. He says a tax holiday would provide consumers little real relief, ignore the country's energy problems and take money from road and bridge repairs.

"This is the problem with Washington. We are facing a situation where oil prices could hit $200 a barrel. Oil companies like Shell and BP just reported record profits for the quarter. And we're arguing over a gimmick that would save you half a tank of gas over the course of the entire summer so that everyone in Washington can pat themselves on the back and say that they did something," Obama says.

Clinton says Obama is turning his back on people who need relief from rising gas prices. Republicans, including the campaign of rival John McCain, question his switch.

THE FACTS:

In 2000, gasoline prices were climbing quickly, reaching $2 a gallon in the Chicago area — a remarkable price back then. Illinois legislators scrambled to offer some election-year relief to angry motorists.

Obama voted three times for a tax holiday.

The version that ended up becoming law required a six-month suspension of the state's share of the sales tax on gasoline, a 5 percent tax paid directly by consumers rather than gas stations. It also required gas stations to post signs on their pumps saying that the Illinois General Assembly had lowered taxes and the price should reflect that cut.

The impact of the tax holiday was never clear.

A government study could not determine how much of the savings was actually passed along to motorists. Many lawmakers said their constituents didn't seem to have benefited. They also worried the tax break was pushing the state budget out of balance.

At the end of Illinois' tax holiday, there was a failed push to eliminate the sales tax permanently. Obama was among those voting against eliminating the tax.

Obama's presidential campaign says the lessons of that Illinois tax holiday influenced his decision to oppose a national tax holiday. The lack of clear results then make him dubious about suspending the national tax now.

In addition, the Illinois tax was paid directly by consumers and increased as gas prices increased. Obama's campaign points out the national tax is a flat 18.4 cents (24.4 cents a gallon for diesel) and, therefore, isn't climbing as gas prices climb. It's also paid by producers, raising more questions about whether they'd pass the full savings along to customers.

During a three-month suspension, the average driver would save only about $28, according to the American Association of State Highway and Transportation Officials.

"That assumes the oil companies are going to give it to you. That's probably not a likely outcome," said Jack Basso, the association's director of management and business development.

If oil companies did pass along the savings, tax experts say, the lower prices would increase demand. Since refineries are already at maximum production levels, the increased demand probably would drive prices back up.

The association also estimates that suspending the tax would divert about $8.5 billion from the Highway Trust Fund, which pays for road and bridge repairs and already faces a shortfall of $3.2 billion. Taking that tax money from the trust fund could endanger hundreds of thousands of jobs — every $1 billion in highway money supports 33,000 jobs, by one estimate — and would push more maintenance and construction costs onto the states.

"The federal gas tax is a piddly little 18 cents. If that is eliminated, it isn't going to make an iota of difference to the average gasoline purchaser, yet it's going to hasten the bankruptcy of the Highway Trust Fund," said Rod Diridon, head of the Mineta Transportation Institute at San Jose State University.

McCain suggests avoiding that problem by replacing the lost money with unspecified funds from elsewhere in the budget. Clinton wants to impose a new tax on oil company profits to make up for lifting the gasoline tax.

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By Christopher Wills

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