Interesting and complementing lead stories in the Washington Post and New York Times this morning, and neither of them can be good for Obama. The Post’s lead story warns of “Taxmageddon” next year, when the payroll tax cut will expire, along with the Bush tax cuts; the Obamacare “surcharges” will also kick in on dividends and capital gains. In all, it will amount to about a $500 billion tax increase next year:
Overnight, the marriage penalty for joint filers will spring back to life, the value of the child credit will drop from $1,000 to $500, and the rate everyone pays on the first $8,700 of wages will jump from 10 percent to 15 percent. . .
The potential shock to the nation’s pocketbook is so enormous, congressional aides have dubbed it “Taxmageddon.” Some economists say it could push the fragile U.S. economy back into recession, particularly if automatic cuts to federal agencies, also set for January, are permitted to take effect.
So it’s easy to make a prediction from here: the payroll tax cut, like the perennial “doc fix” for Medicare reimbursement and the annual AMT adjustment, will become permanent. Maybe other adjustments will be made in a lame duck session after the election. Seems to me Republican candidates ought to have the wit to run with the slogan: A vote for Obama is a vote for $500 billion in higher taxes next year.
Meanwhile, the Times notes in its lead story that rising gasoline prices may present a political problem for Obama. Now this is a curious story, for several reasons. First, Obama, like all right-thinking greenies, want gasoline prices to be higher, though, to be sure, they want high prices brought about by a government tax rather than the marketplace. High gas prices are no fun if it means more profits for private oil companies. Obama admitted this directly when asked about high gas prices in 2008, when he said he didn’t have a problem with them, only that he “would have preferred a gradual adjustment.” Well, prices have crept up gradually since they collapsed back to about $2 a gallon in 2008. So what’s his problem?
His political problem can be seen in this chart, which suggests a correlation between presidential popularity and gasoline prices. (Hat tip: Larry Sabato.)
More anomalous is Obama’s explanation this week that “gas prices are on the rise again because as the economy strengthens, global demand for oil increases.” It is true that global demand for oil is probably the primary driver of the price of oil right now (though surely a risk premium because of Iran is in the mix somewhere), but here in the U.S. demand for gasoline seems to be way off, as shown in the figure below which I plotted earlier this week for my Energy Fact of the Week squib over on American.com. The figure shows retail gasoline deliveries—the best proxy for consumption—falling off a cliff starting a few months ago—before prices began to creep back up. The fall in consumption ought to be holding down gasoline prices, all other things being equal (which they never are). Is the economy about to fall over the cliff along with this indicator? That’s what a lot of people are wondering.