Gas Prices Rocket Up, Threaten Recovery: Will Government Cut The Gas Tax?

A report from the AAA that polls 100,000 service stations shows that average  gasoline prices are up 20% over the last month to $2.42 for a gallon of regular. With oil above $65 and rising and the summer driving season at its beginning, there is a reasonable chance that the number will go higher.

US consumer discretionary income is still under tremendous pressure as are margins a most businesses, so an increase in oil-related products and gas could undermine what appears to be the early stages of a recovery.

The federal government may be able to do something to lessen the blow of rising oil prices, but it would sharply increase the deficit.

The federal gas tax is currently $.184 a gallon. The average state gas tax is closer to $.30.

In 2008, the government brought in $29.6 billion from taxes on gas and diesel.  Temporarily suspending the tax would save Americans who drive long distances and business that rely on trucking for a substantial portion of their monthly costs. It would also require the Treasury to fill another hole by borrowing more money in the form of bonds, putting more pressure on rising interest rates.

If the government is going to stay out of the business of keeping gas prices low, it will have to deal with the fact that the recovery could be thrown off kilter.

Douglas A. McIntyre