Tags: Gasoline | price | Payroll | Tax | Cut

Experts: Pricey Gasoline Will Offset Payroll Tax Cut

Friday, 17 February 2012 11:03 AM

Congress is due to vote on extending a payroll tax cut, yet savings in taxpayers' pockets will likely head to one place: the fuel pump.

Gasoline prices are due to soar past $4 a gallon this summer, possibly approaching $5 in some parts of the country, which will negate the benefits of a payroll tax cut.

"Typically, what they do is they take the money and pocket it. They pay down debt," says Pierpoint Securities chief economist Stephen Stanley, describing what normally happens with tax breaks, according to CNBC.

"In 2011, you had two things that were mirror images of each other. On the positive side, you had the tax holiday and on the negative side, you had rising gas prices which were the inverse of that.”

Other experts agree, as gasoline prices are already breaking records early in the year.

"So far the increase in gasoline we’ve see in terms of the percentage move is very similar to what we’ve seen in prior Januarys," says Joseph LaVorgna, chief U.S. economist at Deutsche Bank, CNBC adds.

"I’ll start to get worried once we’re above $4 a gallon, and if it happens in the next four to six weeks, I think what’s going to happen is you’re going to see prices start to correct owing to normal seasonal behavior.”

Typically, gasoline prices begin their seasonal spike in the spring, when more expensive feedstocks are used in refineries and more motorists hit the road.

This year, however, tensions in the Middle East coupled with U.S. refinery closures have gasoline prices climbing early.

The good news, experts say, is that gasoline prices don't stay around $4 a gallon for long, as people drive less and cut back on demand.

"It's going to be tough to sustain that level," says Brian Milne of energy tracker Televent DTN, according to ABC News.

"People will drive less."

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Friday, 17 February 2012 11:03 AM
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