Both Sen. John McCain and Sen. Hillary Rodham Clinton have called for a "gas tax holiday" this summer to offer commuters and vacationers some relief from spiraling gasoline prices. They have urged Congress to suspend the 18.4-cents-a-gallon federal tax and 24.4-cents diesel tax between Memorial Day and Labor Day, a step that could cost the government about $10 billion that would be used for transportation projects. The only major candidate to oppose the idea is Sen. Barack Obama, who voted for a similar measure in Illinois eight years ago. Obama now says that consumers would derive little benefit from such a moratorium. So, who is right?

THE FACTS

When gasoline prices hit a shocking $2 a gallon in Illinois in the summer of 2000, politicians demanded action. As a Democratic state senator, Obama joined other lawmakers in pushing through a six-month suspension of the state's 5 percent sales tax on gas.

The moratorium proved politically popular but economically questionable. The Illinois Economic and Fiscal Commission estimated that the state lost $175 million in revenue during the six-month period. A subsequent study by the National Bureau of Economic Research showed that gas prices fell by an average of 3 percent while the moratorium was in effect, meaning that only 60 percent of the savings from reduced taxes was passed on to consumers.

Some economists say that a nationwide "gas tax holiday" would have even less effect on gas prices. "It's basic economics," said Len Burman, director of the Tax Policy Center, a nonpartisan think tank. "Gas is always in very short supply during the summer, which is why prices go up."

According to James Hamilton, a professor of economics at the University of California, San Diego, the benefits of a temporary tax moratorium would probably go to oil companies rather than consumers.

"Prices would certainly rise to the market-clearing level," Hamilton said. "I would expect the price to go back to very close to where it was before, in which case consumers would not see any benefit."

THE VERDICT

The advocates of a "gas tax holiday" are exaggerating the benefits to consumers from their proposal. If the Illinois experience is a guide, there is likely to be some reduction in the price of gas, but it would fall well short of the tax reduction. The government would have to cut back on highway construction and maintenance or find some other way of plugging the shortfall in revenue to the Highway Trust Fund.

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