Let’s say your car holds 12 gallons of gasoline. If you have filled up your gas tank nine times in the past week (for some reason), you have spent an average of about $61 dollars more on gas this week than you would have the day President Trump was inaugurated. If you are in the bottom 20 percent of Americans in income, we have some bad news for you: There goes your tax cut.
Democrats have decided to put a new rhetorical emphasis on rising gas prices. Though those prices are largely independent of the effects of policy enacted in the United States, given that they’re a function of a complex international system, Democrats hope to blame Trump for the recent increase by suggesting that his decision to back out of the Iran nuclear agreement caused prices to spike.
Here are the Senate Democrats making that case, for example.
It’s true that over the course of his presidency, gas prices have increased more than they had at the same point in the first terms of presidents Bill Clinton or George W. Bush. During Barack Obama’s first term, the increase was steeper — though that occurred fairly early in his first term, after which prices stabilized.
The increase under Trump has been more significant during the past few weeks.
It isn’t clear how much this is a function of the Iran deal as opposed to, say, the normal increase seen for the summer months. Trump’s announcement on the deal only happened a few weeks ago, and the upward trend began before that.
But as Trump noted on the campaign trail, gas prices are a significant factor for the economic well-being of many American households. (Trump blamed Obama for gas price increases, a move that, predictably, will probably come back to haunt him.)
The Bureau of Labor Statistics compiles data looking at how much households spend on gasoline. On average in 2016, consumers spent the equivalent of a bit over 3 percent of their household incomes on gas. That wasn’t uniformly the case; wealthier consumers spent a lower percentage of their incomes on gas even as they bought more of it. The highest percentage spent was by middle-income Americans.
In 2016, the average price for a gallon of gasoline was $2.14, according to the Federal Reserve. A gallon now costs about 78 cents more. If the average for 2018 were to hold at the current price, the average American household would spend about $700 more on gas than it did in 2016 — and, assuming incomes hold steady, the percent of incomes spent on gas would increase to 4.5 percent. Again, though, those in the middle range would end up spending more of their incomes.
But let’s set that aside and instead consider the increase in costs resulting from increasing gas prices — a political liability for Trump and his party — with the gains in income Americans can expect to see from Trump’s tax cuts, a policy move Republicans hope will be an asset.
The Tax Policy Center calculated how much people in various income groups would be expected to see in federal tax cuts thanks to the new tax law passed last year. In many cases, the expected cuts are minor. If we compare those expected cuts to how much more a household might pay in gas costs,* using the increase from Trump’s first week in office until now, the results are remarkable.
Those in the bottom 20 percent of income-earners will pay three or four times more in higher gas prices than they’ll get back in tax cuts. Those in the next highest quintile of incomes will see a wash — getting back about as much as they pay in higher gas prices.
There is a lot of gauziness to these numbers, of course, comparing a lot of different averages with one another. But the benefits of the federal tax cuts to the lowest-income Americans are modest enough that even a small increase in gas prices over the short term means that any benefits from those cuts are quickly swamped.
And all of this is true even if gas prices don’t continue to rise. If they do, the calculus becomes much more stark for the White House — as do the politics.
* The methodology here: Using the BLS data from 2016, we figured out how many gallons of gas a household bought by dividing the amount spent on gasoline in that year by the average price of a gallon from the Federal Reserve data. Then we multiplied that by the change in gas prices from the most recent week to the week of Trump’s inauguration.