Gasoline War

In looking at the effects of gasoline price increases on the general economy there are several factors at play.

The referenced chart shows dollar expenditure increase at various price levels.  This chart assumes regular grade prices while many new models recommend premium gas to operate their vehicles at peak efficiency, this would skew the numbers even higher.

The effects of gas price increases would be subject to the multiplier.   When considering total economic effects at a multiplier of 3 the net reduction of aggregate purchasing power on items other than gas would be $236.25 per month or $2,835 per year.  It should be remembered that these increased expenditures are on an after tax basis.  That is, you are paying more for gas with money you have already paid Federal Income Tax on, State Income Tax on and Payroll Tax.  In addition you are paying State and Federal Excise Tax on the gas as well as State Sales Tax.  Remember you are paying all these State and Federal additional Taxes on money which you paid Income Tax on already.  Business’s that purchase fuel for their operations have some relief in that they can deduct the cost of fuel from the bottom line “They purchase gas on a Pre Tax basis while consumers purchase it on a After Tax basis.”  A factor to also consider is that a business will pass along to the consumer any additional cost, so it is the individual consumer that pays all these Taxes and increased cost.

One should also recognize that the majority of gasoline sales are on credit cards whose balances are rolled over on a monthly basis with consequent interest charges.  The increased interest expense due to increased gas price would amount to billions of dollars.  This would all be subtracted from aggregate expenditure on other items which would have a negative effect on employment levels.