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Home / Business / Here's how much $ 3 per gallon of gas will offset the tax cuts

Here's how much $ 3 per gallon of gas will offset the tax cuts





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There are tax cuts

It's a question in everyone's mind as gas prices nationwide rise to $ 3 a gallon and the election campaign expands in the medium term ̵

1; the rise in gas prices will Benefit outweigh the tax cuts?

The general rule of thumb is that every 1 cent per gallon results in more $ 1 billion less in consumption per year.

At $ 3 a gallon – the nice, round number tossed around as OPEC has successfully curtailed supply and the US impose sanctions on Iran – that's 58 cents above the 2017 average, which is 58 billion less Consumption. [19659004] Read: US gasoline prices could top $ 3 this summer thanks to Iran and Venezuela

Of course, there's no guarantee that a gallon of gas will cost $ 3 for the entire year, especially given four months in the year Year it's an average of $ 2.62 a gallon. If gas averages $ 3 per gallon for the remainder of 2018 – which is not far-fetched – then the average price will be $ 2.87 per gallon, which means 45% less consumption per year.

Then you must understand the effects of the tax cuts. The Joint Tax Committee estimates that the US government will spend $ 122 billion less on individual taxes in calendar year 2018.

With these numbers, gas would consume on average $ 3 a gallon the rest of the year 37% of tax cuts

Sell-side estimates are of similar magnitude. Morgan Stanley hit numbers assuming gas averaged $ 2.96 a gallon and said it would wipe out $ 38 billion in consumption or one-third of tax cuts, according to The Wall Street Journal.

Oxford Economics ran the numbers at crude oil prices

CLM8, + 0.52%

– and included not only the impact of the Tax and Employment Act but also the draft budget adopted this year. They found that crude oil prices averaged $ 70 a barrel this year, half of the tax push would be eroded.

The economists at Jefferies investigated the problem, pointing out that current gasoline consumption as a percentage of total consumption is 18-year lows. Even 30 percent of the prices would approach the 18-year average.

Furniture and durable household items would be more affected by rising gas prices than clothing, household equipment and restaurant expenses.

In the various stock markets, they found that energy and utilities stocks outperformed six months after rising gas prices by 30%, while consumer discretionary and telecom services were the worst performers.

Another factor to consider is the distribution of gasoline prices is increasing and tax cuts are very different. Expenditure on gas makes low-income households a bigger part of income, while the income shift goes from tax cuts to higher-income households.

Deutsche Bank analysts point out that spending on gasoline and motor oil in 2016 accounted for about 8% of the total income for the average household in the lower 20% of income distribution, more than five times that of households in the highest 20% income quintile.

In other words, for households with the lowest 20% of income distribution, the 30 cent per gallon increase over last year's level will offset the benefit of tax cuts.


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