Tax Cut without Cutting Taxes

The Washington Post recently ran a story about how much less Americans are paying for gas today then we were a year ago – $2.4 billion less!  The lower price of gasoline has resulted in Americans having an extra $2.4 billion in their pockets to spend on other things that would otherwise have been spent purchasing gas.  Thus, the drop in oil prices has produced an economic stimulus similar to a $2.4 billion tax cut, but better.

Just as the wealthy pay a disproportionately high portion of taxes, they also receive a disproportionately high portion of tax cuts.  But the wealthy are less likely to spend their tax cuts.  They save and invest at much higher rates than the general population.  But lower gas prices have benefitted the general population, not just the wealthy, so a much higher percentage of that benefit is being spent – and thus stimulating the economy – than would have been the case with a tax cut.

I have not seen anything from the government saying that the drop in oil prices was engineered to stimulate the economy, and I certainly think that the government would not be shy about claiming credit.  But I am pleased to see the multiplier effect: the benefits accruing to all of us through a stronger economy as we see the savings from the drop in prices being recycled through the economy.  And all done without needing legislation or impacting the budget.  Pretty sweet!

Here is the article from the Washington Post:

Americans are spending more than $2 billion less a week on gas than this time last year

Gas prices keep dropping lower and lower, returning to what The Post’s Steven Mufson calls “the old normal” — the price range that we saw before the last eight years, which were abnormally high, historically speaking. The drop has resulted in a lot of analysis and a lot of explanation, but one thing we hadn’t seen was a clear answer to the most important question: How much money are we actually saving?

We’ll cheat and give you the answer before we show our work. Compared to the first week of 2014, Americans are spending $2.4 billion less each week on gasoline. That’s about $7.50 per week for every person in America.

How’d we get that figure? The Department of Energy’s Energy Information Administration offers data on gasoline supply (which translates to gas consumption) and on gasoline prices. Meaning that we can figure this out.

Since 2000, here’s what gas prices have done (without adjusting to 2014 dollars).

Gas prices are linked to a variety of factors and, as even a cursory visit to GasBuddy.com will demonstrate, vary pretty widely depending on where you are in the country. The EIA figure looks at national prices, which have dropped by $1.19 over the last year. The Midwest was at $1.95 a gallon as of Monday, while the West Coast was at $2.49. But the dollar-plus drop happened in both places.

Meanwhile, 8.8 million barrels of gasoline a day were supplied to retailers in the week ending Jan. 2, 2015, the most recent period for which data are available. Here’s how that has fluctuated.

That’s a huge amount of gasoline, of course, 8.8 million barrels. Each barrel contains 42 gallons, meaning that nearly 370 million gallons of gasoline were supplied each day of the week of Jan. 2. Each day!

The gasoline prices supplied by the EIA and the amount supplied don’t overlap entirely, since the weeks don’t match up. But it still offers a picture of how much we’re spending each week. So the week of Jan. 2, prices were about $2.21 a gallon nationally. Meaning that we spent $5.7 billion that week on gasoline (since 370 million gallons were supplied each day for seven days).

That’s a ton of money. But it’s a lot less than we spent in the first week of January a year ago.

That week the United States spent about $8.1 billion on gasoline — $2.4 billion more. That’s a huge, huge savings. (If you cheat and look at, say, May, the drop is about $4.3 billion, because people bought more gas.)

There are about 319 million people in the United States. That means Americans are paying about $7.50 less per person than a year ago. The good news for the other 318,999,999 Americans is that, if history is any guide, that $7.50 is being spent somewhere else. The Low Gas Price Stimulus is underway.

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One response to “Tax Cut without Cutting Taxes”

  1. jburne says :

    Time for me to be the gadfly…

    Especially given how so many states reduced their gasoline taxes when gas prices first zoomed upwards, and when considering how far in the hole most states are with respect to funding infrastructure (just ask my sister), it’s probably also time to reinstate some of those gas taxes. Roads get needed attention — which just happens to also simulate the economy.

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