“If you find yourself in a hole, stop digging.” If President Joe Biden really means to fight inflation, he should be taking Will Rogers’ adage to heart.
Instead, however, in recent weeks, he signed the “Inflation Reduction Act” that can do no such thing, as it is chock-full with hundreds of billions of dollars in new spending. He then announced a student-loan forgiveness plan for which, according to the University of Pennsylvania Penn Wharton Business Model, the “total plan costs could exceed $1 trillion.”
Even as President Biden continues to stoke inflationary fires with fresh bouts of new spending, the media are trying to convince Americans they’re actually better off. On August 19, CNN reported on a decline in retail gasoline prices from their most recent peak, from $5.02/gallon on June 14 to $3.92/gallon. CNN opted for a handy way to contextualize it: “Next time you stop at a gas station, think of it as a $100-a-month tax cut.” CNN’s math relied on the fact that “the typical U.S. household uses about 90 gallons of gas a month,” multiplied by $1.10.
It can be valuable to consider the practical, real-world effects of changes in the price of gas (or groceries, electricity, taxes, etc.). Chances are, however, that you didn’t think you had received a $100 tax cut. You might have felt slightly less victimized, though.
A problem with CNN’s analysis is that it treated the peak pump price as people’s static price expectation. But consumers have seen enough not to relax immediately over lower prices. After all, they saw prices peak in fall 2021, fall off, and then spike to a higher peak in late winter 2022, then fall off again before hitting the even higher June peak.
The feeling is more like dodging a bullet, not enjoying a cease-fire.
Yes, gasoline prices are declining again, but they are still considerably higher than they’ve been in years. With respect to expectations, no doubt many consumers still have in mind gasoline prices not at $5/gallon but somewhere in the range of $2.50/gallon, where they hovered roughly from 2019-20. Nor has Biden given consumers any reason to expect he will relax his ideological opposition to fossil fuels.
At the start of 2021, the national average retail price of gasoline was $2.25/gallon. Why isn’t CNN telling you to “think of it” as a $130-a-month tax hike? That’s 90 gallons, given the current price of $3.70/gallon, which is $1.45/gallon higher. Or telling you back in June, it was like a $250-a-month tax hike?
CNN did explain why it matters. Mark Zandi, chief economist for Moody’s Analytics, told CNN, based on the June 14 peak, that “A $1 decrease in gas prices equals about $125 billion a year in savings for U.S. households, or more than $10 billion a month.” Nevertheless, CNN has not written from the basis of the $1.45 increase in gas prices that U.S. households lost over $15 billion this month.
Another problem with CNN’s analysis is that other price increases over the past couple of years have intruded upon your supposed $100 tax cut.
Consider the cost of groceries, specifically grocery store food. Those prices have increased by 17% since the end of 2020 when the average household was spending about $412 per month. Using CNN-type analysis (in which, counter to the law of demand, consumers don’t cut back on purchases when prices increase), it would amount to an over $70-a-month tax hike.
Or how about another critical household need, electricity? Since January 2021, average residential electricity rates have increased from 12.69 cents/kilowatt-hour (kWh) to 15.42 cents/kWh in June 2022 (a 21.5% increase). If the average household uses 900 kWh of electricity per month, that would mean something like a $25-a-month tax hike.
Paying much higher prices for gas, groceries, and your power bills since 2021 means having to “think of it” as a $225-a-month tax hike. Americans caught in the middle of high inflation while the Biden Administration piles spending boondoggle upon spending boondoggle aren’t likely to view a temporary downturn in gasoline prices as a tax cut this month. At best, they might feel a little less mugged.
Jon Sanders serves as Senior Fellow in the Center for American Prosperity at America First Policy Institute and is the Director of the Center for Food, Power, and Life for the John Locke Foundation in Raleigh, North Carolina.
The views and opinions expressed in this commentary are those of the author and do not reflect the official position of the Daily Caller News Foundation.
Editor’s note: This column has been updated.
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