A Project of The Annenberg Public Policy Center

Running on Fumes

Clinton, Obama both mislead with ads promising gas price relief.


Summary

Late-inning ads by both Clinton and Obama in the run-up to the Democratic primaries in Indiana and North Carolina focus on Clinton’s gas tax holiday proposal. But the ads are also misleading.

  • Clinton’s ad claims motorists would save $8 billion during her summer "holiday," not mentioning that no economists agree with her. She herself didn’t name one when asked in a weekend tv interview.
  • Obama’s ad accuses Clinton of "pandering" to voters, then ticks through the elements of his plan — leaving aside the fact that Clinton’s plan includes each of those elements as well.
  • Obama’s $1,000 tax credit for families is made to sound as though it was designed to offset rising gas prices. It actually dates back to last fall, when he proposed it as part of his tax plan.

Analysis

Senators Hillary Clinton and Barack Obama go down to the wire fighting about her "gas tax holiday" plan as Indiana and North Carolina voters prepare to cast their ballots. A little correcting and contextualizing is called for.

[TET ]

Hillary Clinton 2008 Ad: "Gas Tax"

Female: Gas prices are so high.

Male: It’s hard to decide between a gallon of milk and a gallon of gas.

Narrator: Hillary’s fighting to use the windfall profits of big oil to pay to suspend the gas tax this summer and save families $8 billion.

Narrator: Barack Obama says that’s just pennies. He’d make you keep paying that tax instead of big oil.

On screen graphic: Obama would make you keep paying that tax. WSJ.com, 4/21/08

Narrator: Hillary will make the oil companies invest in clean energy and bring gas prices down for good. Relief for today. Bold solutions for tomorrow.

Clinton: I’m Hillary Clinton and I approved this message. [/TET]

Don’t Pack Your Bags Just Yet

In the Clinton ad "Gas Tax," two hard-pressed motorists bemoan the high cost of gasoline. Enter Clinton the fighter: She wants to use the "windfall profits of big oil" to give families a break from the gas tax, saving them $8 billion over the summer, the narrator says. He tells us Obama calls that "just pennies" and would "make you" keep paying the tax. Then we hear a bit of the long-term: Clinton would "make" the oil companies invest in clean energy, which will bring oil prices down for good.

It’s true that the federal gas tax brings in as much as $8.5 billion in revenue over three months. If prices really went down by 18.4 cents per gallon (24.4 cents for diesel), the average driver could save $28 — or $56 for families with two vehicles (Clinton’s team says it would be $70 per motorist, but we’ve been unable to find any support for that). Families that do a lot of driving could save more, of course, and reduced fuel costs might translate into slightly lower prices for food and other goods that have to be trucked or flown to their destination markets. Meanwhile Clinton would make up the funds that went missing in the federal treasury by, she says, taxing the oil companies’ windfall profits.

But as we pointed out last week, economists say that Clinton’s plan isn’t likely to save any money at all. Lower gasoline prices would simply trigger demand, but since refineries are already working at full capacity in the summer months, the supply of gasoline (at least in the short term) is pretty much already fixed. Any price reductions that might appear initially would quickly be wiped out by the increased demand that would lead consumers to bid up the price of gas until prices returned to their pre-tax holiday levels. That means that the 18.4 cents per gallon that drivers currently pay in federal taxes would instead be transferred to the pockets of oil companies. Clinton then proposes to tax that profit to pay for the gas tax holiday.

We and other journalists have tried, unsuccessfully, to find any economists who think Clinton’s holiday will actually give drivers relief. The Clinton campaign itself hasn’t produced one, either. When pressed to name a single economist who supported her plan during her May 4 appearance on This Week, Clinton responded:

Clinton (May 4): Well, I’ll tell you what, I’m not going to put my lot in with economists, because I know if we get it right, if we actually did it right, if we had a president who used all the tools of the presidency, we would design it in such a way that it would be implemented effectively.

The president’s toolkit is admittedly impressive, but we’re skeptical that it includes a gizmo for suspending the laws of supply and demand.

As for making the oil companies invest in clean energy, we’d note that the companies are already doing just that. They may not be doing enough of it to satisfy Clinton, and some have seen the handwriting on the wall more clearly than others, but at a hearing last month on Capitol Hill the Big Five oil companies — ConocoPhillips, Exxon, BP, Chevron and Shell — all described their efforts on alternative energy, some of which are significant.

Haven’t We Seen That Somewhere Before?
 

Barack Obama pushed back with an ad of his own, accusing Clinton of "political pandering" with "poll-driven gimmickry." The ad goes on to explain that Obama has a plan to tackle price gouging, tax windfall profits, invest in alternative energy and give a $1000 tax cut to "working families." But Obama’s ad manages to squeeze in some misrepresentation and pandering of its own all while falsely implying that his plan is significantly different from Clinton’s. 

[TET ]

Barack Obama 2008 Ad: "Pennies"

Narrator: Another negative ad from Hillary Clinton. But here’s what she’s not saying.

Narrator: USA Today calls her three-month gas tax holiday “political pandering.”

On screen graphic: “political pandering” USA Today, 4/29/2008

Narrator: It’s an election-year gimmick that would save Carolinians just pennies a day.

On screen graphic: “poll-driven gimmickry,” Wall Street Journal, 4/16/2008

Narrator: Barack Obama’s plan? Take on price gouging by oil companies. Tax their windfall profits. Invest in alternative energy. Give working families a permanent $1000 tax cut to help with rising costs. That’s change we can believe in.

Obama: I’m Barack Obama and I approved this message. [/TET]

The biggest distortion in Obama’s ad is his pledge to “give working families a permanent $1,000 tax cut to help with rising costs” of gas. It’s true that Obama is offering to offset payroll taxes on the first $8,100 of each family’s income. That credit could be worth as much as $1,000 per family. But Obama is wrong to imply that this cut is designed specifically to “help with rising costs” of energy. The proposal is part of a tax plan that Obama unveiled in September 2007. In fact, because Obama is proposing a tax credit, Americans wouldn’t see any money until they file their 2008 taxes – something that won’t happen until January 2009. Clinton is not proposing a similar broad-based tax cut, but she has called for a whole range of other middle-class tax cuts.

Obama also promises to "take on price gouging." The claim that oil companies are manipulating gas prices is popular on the campaign trail: Clinton has similarly called on the Federal Trade Commission (FTC) to investigate "market manipulation in wholesale oil prices" so that oil companies are not "ripping off consumers." But what Obama doesn’t mention is that the FTC has conducted price-gouging investigations before, most notably in the wake of Hurricane Katrina. The FTC found "no instances of illegal market manipulation" and concluded that the price increases "were approximately what would be predicted by the standard supply-and-demand model of a market performing competitively."

That’s not to say that market manipulation (or price-gouging) is impossible. And the FTC, as well as state attorneys general, may well be conducting further probes even as we write this (they’re generally supposed to be confidential until they’re completed). But most economists say that gasoline prices have more to do with market forces than with oil company shenanigans.

Obama’s plans to tax on oil company windfall profits and invest $150 billion in alternative energy research are as advertised. What he doesn’t mention is that Clinton’s energy plan calls for spending an identical $150 billion in alternative energy research. One-third of the money would go into a $50 billion "Strategic Energy Fund," which would be funded by a "windfall profits fee" on oil companies. We’ve said before that there is very little in the way of substantive policy daylight between Clinton and Obama. The Washington Post found that the two senators voted the same way 93.8 percent of the time, and interest groups across the political spectrum awarded them similar scores.

In a nutshell, Clinton and Obama are offering nearly identical energy plans. Both imply that price gouging is partially responsible for rising prices without providing adequate proof that price gouging is actually occurring and both want oil companies to help fund research into alternative energy. And neither candidate has a short-term plan that will, in fact, help families cope with rising gas costs.

The gas tax holiday is one of the few areas of real disagreement between the two candidates. Economists score that one for Obama.

-by Joe Miller, with Viveca Novak, Emi Kolawole, Jess Henig and D’Angelo Gore

Sources

Barack Obama. "Barack Obama’s Plan to Make America an Energy Leader." May 2007. Barack Obama: Issues. 5 May 2008.

Barack Obama. "Family." 2007 2008. Barack Obama: Issues. 8 May 2008.

Barack Obama. "Obama on Gas Tax Holiday: A Gimmick Instead of a Real Solution." 29 April 2008. Barack Obama: News and Speeches. 5 May 2008.

Federal Trade Commission. "FTC Releases Report on its “Investigation of Gasoline Price Manipulation and Post-Katrina Gasoline Price Increases." 22 May 2006. Federal Trade Commission. 5 May 2008.

Hillary Clinton. "Clinton Offers Relief for Record Gas Prices." 14 March 2008. Hillary Clinton: Press Releases. 5 May 2008.

Hillary Clinton. "Clinton Outlines Tax Cuts For Pennsylvania Families On Fourth Day of Economic Tour." 31 March 2008. Hillary Clinton: Press Releases. 5 May 2008.

Hillary Clinton. "Powering America’s Future: Hillary Clinton’s Plan to Address the Energy and Climate Crisis." February 2007. Hillary Clinton: Issues. 5 May 2008.

House Select Energy Independence and Global Warming Committee Hearings. "Drilling for Answers on Oil and Gas Prices, Profits, and Alternatives." 1 Apr. 2008.