Wolf Research Warning: Rising Gasoline Prices May Offset One-Third of Tax Cut Stimulus Effects

Investing.com - According to Wolfe Research’s analysis, rising gasoline prices could significantly weaken the consumer stimulus effects expected from the “One Big Bill” (OBBB) by the U.S. government.

Strategist Stephanie Roth stated in a report, “Low gasoline prices have been one of the few pillars supporting the government’s affordability narrative. But this situation now appears to be unraveling and could offset a substantial portion of the consumer stimulus from the bill.”

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Roth compared the impact of rising gasoline prices to the approximately $188 billion in consumer stimulus expected from the bill’s tax provisions. Wolfe’s analysis indicates that although the policy should generally still provide net benefits, rising fuel costs may weaken its effect on household spending.

Roth said, “If the average gasoline price in 2025 is $3.10 per gallon and continues to rise by 20% (roughly matching current levels), it would impose an annual burden of about $65 billion on consumers.”

In this scenario, she estimates that increased gasoline spending would effectively offset about one-third of the total tax cuts. However, the impact will vary significantly across different income groups.

The strategist emphasized, “The top three income quintiles will still see substantial net gains, the second-lowest quintile will break even, while the lowest income quintile will suffer a clear net loss.”

Low-income households are especially vulnerable because they gain limited benefits from tax cuts but still face higher fuel costs. Roth pointed out, “The lowest income quintile benefits very little from the tax cuts but still bears the burden of higher gasoline costs.”

She also simulated a more severe energy shock scenario. If gasoline prices rise to $5 per gallon and stay there until September, Roth estimates that increased fuel expenses would nearly completely offset all consumer benefits from the tax cuts. If prices rise to $5.50 during the same period, the stimulus effects would be fully offset and even surpassed.

Roth added, “This does not yet account for potential increases in food prices caused by conflicts.”

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