Tax cuts are always at the core of the GOP platform, and Donald Trump has applied them as avidly as any Republican, making the maintenance of his first-term tax reductions for high-income earners a key aspect of his second term, while layering in breaks intended to appeal to low-income earners like his “no tax on tips” promise and bigger refunds. According to New York Times tax policy analyst Andrew Duehren, however, not only will the majority of Americans notice little change in their taxes, but the costs tied to the war in Iran could offset any savings altogether.
One of the most consequential results of Trump’s war on Iran has involved the closure of the Strait of Hormuz, arguably the world’s most essential global trade route, through which typically passes roughly 100 ships carrying oil and other goods per day. With shipping passages at a standstill since Trump initiated the war, US gas prices have skyrocketed by as much as 65 cents per gallon – the fastest weekly increase in two decades.
That translates into higher costs across the board, which experts say is going to eat into what little stimulus Americans could have expected in the coming months.
Michael Pugliese, a senior economist at Wells Fargo, had expected the tax cuts to provide slight economic growth over the next year. Now, he says, all it will serve is to “limit the downside” of the war, saying, “This energy shock is coming just as the refund money really gets flowing.”
Morgan Stanley economist Heather Berger agrees, saying, “If the oil shock is large and sustained, then yes, it can more than offset this boost from refunds.”
This is bad news for Republicans, who were counting on the tax cuts and theoretical economic stimulus to bolster their floundering support in November’s midterm elections. But not only has Trump’s war in Iran torpedoed such hopes, but they may have been overoptimistic in the first place.
According to Berger, economists expected the boost to be “relatively minor” even before the war, saying, “We didn’t have it resulting in this very large jump in spending regardless.”
As Duehren writes, the underwhelming impact of the tax cuts plus the increased cost of living mean that “the dominant impression of the economy for many Americans this spring could ultimately come down to gas prices that have risen rapidly, eating into their purchasing power.”
