Friday's HOT MIC
Wishful thinking or a bad omen?
The increased cost of fuel is already wiping out a big chunk of the benefit Americans received from the GOP tax cuts. And things could get worse as summer approaches following the administration’s standoff with Iran and a move by oil-producing nations to tighten supplies.
The result: The economic and political benefits Trump and the GOP hoped to reap from cutting tax rates could be swamped by higher pump prices that Americans face every time they hit the road.
“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, chief U.S. economist at Morgan Stanley. “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.”
The economic impact of higher gas prices is already stark.
Morgan Stanley estimated that if prices remain at current levels, they would cost U.S. households an additional $38 billion this year. Using Joint Committee on Taxation data, it estimated the tax-cut bill would reduce individual taxes by about $128 billion in 2018. And it gets even worse for Trump.
I was horrible at math in school but isn't that still $90 billion in the pockets of Americans? Sure, $38 billion is a serious hit but how much blame will be placed on the president?
Also, that $38 billion is only a valid number if high prices hold through December 31. Prices are likely to drop after the summer is over, although they will remain high until some slack is created in supplies.
Hint: OPEC doesn't have that kind of clout anymore.
Bottom line: There is absolutely no sign that consumers and businesses are any less confident about the future, which would put a dent in the theory that high gas prices will create a backlash against Trump and the Republicans.