Rising gas prices offset payroll tax savings

John Dimsdale Feb 17, 2012

Adriene Hill: Coming up, the global perspective on business and economics. But first to Washington, where we’re expecting lawmakers will today pass an extension of the payroll tax holiday. The cut is worth about $1,000 a year to the average family. And economists are hoping that extra money could stimulate the economy.

But as John Dimsdale reports, there’s a problem with the plan: rising gas prices.

John Dimsdale:  At a national average of $3.52 cents a gallon, gasoline prices have jumped 8 percent this year. 

Trevor Houser:  Increasing gasoline prices just in first six weeks of this year have already reduced monthly household income by about $40. 

That’s Trevor Houser, an economist at the economic research firm Rhodium Group. With the average family getting around $85 a month from the payroll tax holiday, already almost half has been eaten up by gasoline. And if prices hit $4 a gallon by this summer?

Houser: So if we get that much of an increase again, that will have pretty much completely eroded the effects of the payroll tax cut. 

So much for economic stimulus. Economist Chris Christopher at IHS Global Insight says there is one way to avoid some of the drain on the household budget. 

Chris Christopher:  As gas prices go up, and they’re going to go up,  people tend to shop more at home.  

Putting computers and smartphones to work and letting UPS, FedEx and the Post Office struggle with prices at the pump.

In Washington, I’m John Dimsdale for Marketplace.

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