Don't count on gas tax cut lowering prices

As economists explain it, gas prices typically rise in the summer months because demand is higher. Now, refineries are already running near capacity. If lifting the federal tax reduces gas prices, that could boost demand even more. Supply can't grow in economics terms it is known as being inelastic so it could drive prices back up.

That means the economy wouldn't get the intended stimulus, and consumers would see no benefit or could even be worse off.

"If the supply is really fixed, then no cut in the federal gas tax will change gas prices," said Jerry Taylor, senior fellow at the libertarian Cato Institute.

Meanwhile, the oil and gas companies which already have been tallying massive profits thanks to higher gas prices could see another boon to their bottom line if prices rise and they don't have to deduct any tax from their prices, notes Len Burman, director of the nonpartisan Tax Policy Center.

"As if Exxon Mobil doesn't have enough," Burman said, referring to the Houston-based oil giant that on Thursday reported first-quarter earnings of $10.9 billion, a 17 percent year-over-year gain.

There is also more to this issue than just the quick fix for the economy. As noted above, it would strip the government of funds for highway and transportation needsaccording to the Tax Policy Center, a tax issues analysis think tank. Besides, this effort would encourage more gas consumption when the world is trying to lower it to reduce global warming.

Obama's rivals have attacked him for not supporting the gas-tax relief but he might have some insight into this issue that the others do not. Back in 2000 when Obama was in the Illinois Senate, he supported suspending gas taxes in his home state, a moratorium that didn't turn out to be much of an economic boon at all.

A study by the National Bureau of Economic Research of the short-term tax breaks in Illinois, and Indiana during the same period, found that gas prices which were around $2 a gallon then fell by an average of 3 percent, not the full 5 percent of the tax cut. That means about two-thirds of the tax holiday was passed along to consumers.

The relief was short-lived. After the moratorium ended, prices rose 4 percent. And the tax cut cost Illinois an estimated $157 million in funds and $46 million was lost from Indiana, according to the study.

That shows the real cost of putting pennies back in consumers' wallets.