Gas Tax Threatens to Erase 60 Percent of Tax Cut Benefit

WINCHESTER , ENGLAND - NOVEMBER 20: A close-up view of a petrol pump at a petrol station on November 20, 2017 in Winchester, England. UK diesel car drivers are expected to face car tax hikes in proposals set to be announced in the Autumn Budget on Wednesday. (Photo by Matt …
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Raising the federal tax on gasoline would help erase 60 percent of the benefit from the tax breaks President Donald Trump signed into law late last year, according to a new report from Daniel Clifton, Strategas Research’s head of policy research.

President Trump reportedly endorsed the idea of raising the gas tax, currently 18.4 cents per gallon, by 25 cents. Gary Cohn, the former Goldman Sachs executive who is now one of Trump’s top economic advisers, has reportedly raised the idea with lawmakers.

The government already expects gasoline prices to rise by 20 cents per gallon, according to Clifton.

“The proposed gasoline tax increase adds another $0.25 per gallon. The combined $0.45 increase in gasoline prices eats away $71.6 billion from the $120 billion in individual tax cuts, or 60 percent of the net tax savings for consumers,” Clifton wrote in a research note. The Strategas analysis was first reported by CNBC’s Patti Domm.

Looked at another way, the proposed tax would more than wipe out all of the gains workers are expected to see from the corporate tax cut. Clifton’s analysis indicates that the cost of an increase in gasoline prices due to the tax would be nine times greater than the estimated $4 billion workers are expected to receive from employers due to the corporate tax cut.

One likely effect would be to slow the economy, making it harder for the Trump administration to hit its target of three percent or better growth. Higher gasoline prices tend to weigh on economic growth, acting as a tax on economic activity.

Clifton points out that higher gas prices tend to be negatively correlated with presidential approval ratings. As a result, a tax hike could improve the electoral chances of Democrats to recapture the Senate and the House this November.


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