Leaving The Iran Nuclear Deal Is The Same As Raising Taxes On All Americans

Gage Skidmore/CC BY-SA 2.0/Flickr

It wouldn't take much of a rise in gas prices to eat up the benefits Americans see from President Trump's tax cuts.

Reports at the end of April indicated that an increase in gas prices could see Americans’ gains from President Trump’s tax cuts all but wiped away, and now with his decision to withdraw the United States from the Iran nuclear deal, those reports could prove prophetic in the next several months.

Via Business Insider:

By leaving the Iran deal, Trump would limit access to oil from the country and make a large piece of the global supply unavailable in the US. In turn, this would likely help drive gas prices higher. And as analysts have noted, gas prices don't need to climb much to eat up a large portion of the discretionary spending savings from the GOP tax law.


Damien Courvalin and Jeffrey Currie, analysts at Goldman Sachs, say between 250,000 and 500,000 barrels per day could be subject to US sanctions and pulled off the market. That would boost oil prices anywhere from $3.50 to $7 per barrel above their current trajectory, the analysts said.

With the average price of a gallon of gas rising from $2.52 to $2.96 over the past year, Morgan Stanley economist Ellen Zentner said if the increase is sustained over 2018, it could zap a significant portion of the average American household’s gains.

"If we flat line the current gas price over the course of this year to reflect a sustained impact, the average price per gallon of gasoline will be about 36 cents higher this year compared with last year's average," Zentner wrote in a note to clients Tuesday. "That 'steals' about an annualized $38 billion in spending from elsewhere, or roughly one-third of the benefit to households from lower withholding."

What, then, of a further increase in prices?

While the higher gas prices would already consume a substantial percentage of the wage gain from the new tax law, a further increase could wipe out the benefit altogether, said Matthew Luzzetti, senior economist at Deutsche Bank.

"Referring to the above relationship between gas prices and spending on energy items, the former would have to rise by a sustained $1.05 per gallon to completely offset the aggregate disposable income gains from tax cuts," Luzzetti wrote in a note to clients.

Click here to read more.