Market Insider

Trump's gas tax would wipe out 60% of tax cut benefit for individuals, analyst estimates

Key Points
  • President Trump reportedly endorses the idea of a 25-cent per-gallon gasoline tax to pay for infrastructure improvements for roads, bridges and highways.
  • Strategas Research points out that the higher tax, along with expected increases in fuel costs, would take away about $71 billion from consumers, or 60 percent of the expected $120 billion gain from tax cuts.
  • The increased cost of gas at the pump would also be nine times larger than the estimated $4 billion companies are handing to workers in the form of bonuses, due to corporate tax cuts.
Gas tax is the pot of gold that built America: Fmr. Transportation Secretary
Gas tax is the pot of gold that built America: Fmr. Transportation Secretary

A 25-cent gasoline tax, reportedly endorsed by President Donald Trump, would help wipe out 60 percent of the benefit from the tax breaks he recently signed into law for individuals, according to Strategas Research.

Daniel Clifton, Strategas' head of policy research, said the increase in gasoline prices would also be nine times larger than the estimated $4 billion workers are receiving from employers due to the corporate tax cut.

The gasoline tax, now 18.4 cents per gallon, has not been raised since 1993 when Bill Clinton was in the White House. Gary Cohn, White House economic advisor, has been discussing a gasoline tax raise.

Government data already show an increase in gasoline prices of 20 cents per gallon this year, costing consumers about $34 billion, Clifton noted.

"The proposed gasoline tax increase adds another $0.25 per gallon. The combined $0.45 per [gallon] 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 note.

Trump reportedly endorsed hiking the federal gas and diesel tax by 25 cents. Democratic Sen. Tom Carper of Delaware said Trump said he'd be willing to provide leadership on the increase to pay for improvements to roads, highways and bridges.

The average national price of gasoline Thursday was $2.55 per gallon, down from $2.60 a week ago, but well above last year's $2.28 per gallon, according to AAA. Diesel fuel was selling for an average $2.98 per gallon, up from $2.51 per gallon a year ago.

For an average family, the proposed 25-cent jump in the gasoline tax could become noticeable quickly. For instance, a 12-gallon fill-up would cost $3 more with the new tax.

Strategas charted the negative correlation of a president's approval rating and rising gasoline prices, not a positive for the Republican Party ahead of midterm elections. Post tax bill, Democrats' lead in the generic ballot has been falling.

Source: Strategas

Clifton notes that by Friday, 90 percent of workers will see higher take-home pay in their weekly paychecks, giving Americans a raise all at the same time.

U.S. energy production could be a cushion against inflation, as higher prices encourage more production. "The recent move in yields has correlated well with the price of oil but as soon as oil prices hit $65 per barrel, the spigots for US oil production were turned back on. An increase in gasoline taxes would offset this," Clifton wrote.