Low Gas Prices Versus the Fiscal Cliff

gas signGasoline prices have hit a 2012 low, according to the widely followed Lundberg Survey and the AAA Fuel Gauge. Lundberg reported that the average price nationwide for a gallon of regular over the two weeks that ended on December 21 dropped to $3.2579, a stark contrast to nearly $4 this last spring. The price of gasoline could be an unexpected aid to economic growth as the fiscal cliff approaches.

For argument's sake, a family that drives 25,000 miles consumes 1,250 gallons of gas, if their vehicles get 20 mpg. A family with two working adults could easily travel that much. The 75 cent difference between the price of gas eight months ago and now would save that family almost $950 a year - a substantial sum if the family has annual income of $50,000 before taxes.

The Tax Policy Center reports that a taxpayer who makes between $50,000 and $75,000 a year will have an increase in taxes, on average, of $2,400 if Congress does not maintain tax cuts. The tax on the person who makes $50,000 is likely to be less than the one who makes $75,000 - perhaps only $1,500.

While $1,500 and $950 are not the same amount, they are somewhat close. Perhaps they are close enough to keep some middle-class consumers from outright despair. And outright despair among consumers stands first among the enemies of GDP growth in the first part of 2013.

Gas prices will come, at least partially, to the aid of the economy. They set off alarm bells when the price was near $4. Now, they offer some real relief.

Douglas A. McIntyre


Filed under: 24/7 Wall St. Wire, Oil & Gas Tagged: featured

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