Tags: gas prices rise | tax cuts

Politico: Gas Price Increases Could Place Roadblock on Tax Cut Benefits

Politico: Gas Price Increases Could Place Roadblock on Tax Cut Benefits
(Dreamstime)

By    |   Friday, 25 May 2018 11:04 AM

Increases in gas prices could slow down the economic advantages brought on by tax cuts, as well as the political fortunes of Donald Trump's Republican Party, Politico reported.

The price of regular-grade fuel has risen 47 cents a gallon since the beginning of 2018, AAA reported.

Increasing fuel prices have wiped out part of the benefit that Americans have received from the Republican tax cuts, and the situation could worsen as summer arrives, following the Trump administration's standoff with Iran and reductions in supplies by oil-producing nations, Politico's report said.

"If you look at the benefits of what households are getting from lower rates, roughly one-third of that is wiped out if these higher gas prices are sustained," said Ellen Zentner, Morgan Stanley chief U.S. economist, Politico reported.

"And when we drive down the street, every block we see glaring signs about how much gas costs that day and it's all over the media. The tax cuts were a one-off. It's a one-time level shift in your paycheck that you are not reminded of every day," Zentner said.

If gas prices stay at current levels, Morgan Stanley estimated that it would cost U.S. households an extra $38 billion this year. That gas price increase is felt most by lower-income Americans who received the smallest share of the tax cut benefits, Politico reported.

That increase could hit Americans in the South, where people drive the most, and where Trump's blue-collar Southern base resides, the report said.

Consumer spending remains fairly strong, but the latest retail sales figures show a 0.3 percent drop in restaurant and bar spending, Politico reported.

"Gas prices will reduce the benefits of the tax cut by at least one-third, but I think the impact may actually be much larger than that because the bulk of the tax cuts go to high-income households who aren't going to spend much of it," said Mark Zandi, Moody's Analytics chief economist.

The negative effects of higher gas prices are not guaranteed, however — many analysts see the price increases as temporary, and Americans spend less now on gas because of alternative energy sources and more efficient vehicles, the report said.

"There's still a positive impact from the tax cut, but it tells a different story when the tax cuts are seen against the backdrop of higher gas prices," said Zentner, the Morgan Stanley economist.

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Increases in gas prices could slow down the economic advantages brought on by tax cuts, as well as the political fortunes of Donald Trump's Republican Party, Politico reported. The price of regular-grade fuel has risen 47 cents a gallon since the beginning of 2018, AAA...
gas prices rise, tax cuts
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2018-04-25
Friday, 25 May 2018 11:04 AM
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