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Correction to This Article
A previous version of this article incorrectly said that the Congressional Budget Office estimated that suspending the federal gasoline tax for the summer would save families an average of $30. Estimates of minimal driver savings have come from Taxpayers for Common Sense and from independent economists. The CBO has estimated the cost of the suspension to the federal highway trust fund. The article also misspelled the name of Kevin Knobloch, president of the Union of Concerned Scientists. .

Clinton Gas-Tax Proposal Criticized

Economists Share Obama's View

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By Alec MacGillis and Steven Mufson
Washington Post Staff Writers
Thursday, May 1, 2008

A growing chorus -- including a top congressional Democrat -- labeled Sen. Hillary Rodham Clinton's proposal for suspending the federal gasoline tax ineffective and shortsighted yesterday, even as she continued to paint Sen. Barack Obama as insensitive to drivers' woes for not endorsing the plan.

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The Democrats' clash on the issue has emerged as a flash point in the week before the presidential primaries in Indiana and North Carolina and is emblematic of the broader contrast that the candidates have presented: Clinton says she would make immediate bread-and-butter fixes for struggling Americans, while Obama portrays himself as a truth-teller who would bring a new kind of politics to Washington and produce more lasting change.

Backing up Obama's position against Clinton's proposal to suspend the 18.4-cent-per-gallon tax for the summer is a slew of economists who argue that the proposal, first offered by Sen. John McCain, the presumptive GOP nominee, would be counterproductive. They argue that cutting the tax would drive up demand for gas at a time when the supply is tight, which would mean that the price at the pump would drop by much less than 18 cents per gallon.

The tax suspension would, as a result, cut into the highway trust fund that the tax supports, a loss of about $9 billion over the summer, but also result in fatter profit margins for oil companies. Clinton says she would replace the lost revenue by raising taxes on the oil industry.

Harvard professor N. Gregory Mankiw, who has written a best-selling textbook on economics, said what he teaches is different from what Clinton and McCain are saying about gas taxes. "What you learn in Economics 101 is that if producers can't produce much more, when you cut the tax on that good the tax is kept . . . by the suppliers and is not passed on to consumers," he said.

Clinton has an ad running in North Carolina and Indiana that attacks Obama for his opposition to lifting the tax. Yesterday, she added visuals to her pitch by joining a sheet-metal worker on his ride to work, stopping with him at a gas station to fill up the pickup truck he was driving as her motorcade's SUVs idled nearby.

"I'm willing to give you a little more relief on a short-term basis," Clinton said. In Apex, N.C., her husband chimed in by telling voters, according to ABC News: "There's a difference between the two candidates here. Her opponent says, 'Well, she's just pandering to voters.' That's not true. Look, folks, there are people out here who are choosing every week now between driving to work and having enough food for their kids, between driving to work and paying their medicine bills."

Obama, who as a state senator supported temporarily suspending the Illinois gas tax in 2000, cast Clinton's proposal as a ploy that would, according to an estimate by the Congressional Budget Office, save the average family about $30 for the summer -- or, he said yesterday, "30 cents a day, which is less than you can buy a cup of coffee for at 7-Eleven." He began running a 60-second ad showing a clip of him responding to what he calls the "Clinton-McCain proposal" at a rally.

"That's typical of how Washington works. 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," he says in the ad. "We cannot deliver on a better energy policy unless we change how business is done in Washington. . . . That's what you need from a president -- someone who's going to tell you the truth."

Obama is proposing to reduce the cost of driving by suspending purchases for the country's Strategic Petroleum Reserve. Over the long term he would also tax windfall oil profits and cap carbon emissions to provide rebates for low-income Americans and money to invest in renewable-energy research.

He supports ethanol, which is a boon to his state's corn growers but has driven up food prices.

Leonard Burman, director of the Tax Policy Center of the Urban Institute and the Brookings Institution, said the laws of the market argue against a tax suspension. "Every summer, the refiners are running full out. If the price fell, people would want to drive more and there would be shortages," he said. "It's a basic economic principle that if the supply is fixed, the price is going to be determined by demand."


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