[untrained skeptic]

This is an inaccurate portrayal of how market forces work. Taxes are just another cost, much like production costs. So if I reduce production costs to zero, people would still be paying $3.50 a gallon? No, producers would make more profit on volume by reducing cost, so they would act in their best interest. So would consumers, buying more within the limits of their budget, so demand would increase-- the price would not drop by the full amount of the removed cost, but it wouldn't return to $3.50 unless demand was insatiable.

What you are missing is that supply is capped at the amount of gasoline that the oil companies can refine. They run their refineries at pretty much full capacity through the summer because demand remains high.

But why settle for my opinion: Fact-- when Illinois gave a "tax vacation" for SIX MONTHS in 2000 on their 5% tax, the price dropped initially by close to 5% then reached an equilibrium at a 3% reduction (due to increased demand)where it remained for the remainder of the period.

Reducing the tax in one state has a different effect, because the supply to that state can increase at the expense of gas being sent to other states in the region.

If you lower the tax in the states you might be able to pull some of the gasoline supply from Canada if the same refineries can effectively supply both. The oil industry in Mexico is nationalized, so it's less likely on that border.

Reducing costs would drive down prices in a competitive market if supply isn't capped and demand isn't constantly bumping up against that cap. That's not our situation.

[LambSlave]

Okay, I see where you are coming from now. I did note in my post that this could be the case if the demand were insatiable, by which I meant greater than total existing capacity. I did not think this was the case, but if the refining margin is that tight, then it may be. Since demand is only increasing, wouldn’t it be profitable for someone to build a new refinery?