After you think about all the nice things spring brings – more flowers, warmer weather, spring training in baseball and the list goes on, it also means filing your income taxes. Ideally, you get a refund, but some will have to pay more

In an article by Christopher Rugaber of the Associated Press, according to President Trump, his big beautiful bill was going to giving millions larger tax refunds and the money was going to stimulate the economy. In December, President Trump was suggesting spring is projected to be the largest tax refund season of all time. (notice with President Trump every event is the biggest, the best of all time).

On February 28th, President Trump added a new wrinkle to everyone’s finances – higher gas prices. Even if the war is over in a short period of time, gas prices are likely to remain elevated for some time because logistics of shipping and production have been disrupted and will take time to recover. Economists are now expecting spring to have slower growth in the economy, higher growth in nature.

Lower and middle-income households are likely to be hit particularly hard because they receive lower refunds, while spending a greater proportion on their earnings on gas.

Sidenote: recently read a book called Evicted: Poverty and Profit in the America City by Matthew Desmond, 2016. The book focused on Milwaukee, Wisconsin, but could have been anywhere in the US. In Milwaukee and likely other cities, the local electricity provider is not allowed to disconnect the electricity during the winter months. The poor generally fall behind on bills in winter and depend on tax refunds to pay the electricity bill so by next winter their electricity is functioning.

Neale Mahoney, director of the Stanford Institute for Economic Policy Research, calculates gas prices could peak in May at $4.36 a gallon, based on oil price forecasts by Goldman Sachs, followed by slow declines the rest of the year. The notion that gas prices decline much more slowly than they rise is so ingrained among economists that they refer it to as the rocket and feathers phenomenon.

The US Tax Foundation estimates the average refund per household will be $748. If gas stays high, the average family will pay $740 a year more in gasoline.

Economists at Oxford Economics, a consulting firm, estimates that if gas prices average $3.70 a gallon all year it will cost consumers about $70 billion. That is more than the expect $60 billion in increased tax refunds.

Pantheon Macroeconomics estimates the top 10% of households spend about 1.5% on gasoline, while the bottom 10% of earners spend 4% of their incomes on gasoline.

For now, American consumers and businesses have repeatedly shaken off the shocks to the economy and continued to spend, defying concerns the economy would tip into recession.

Linking to dividend paying stocks, the important aspect of investing is to pick the winners and losers and try to invest in the winners, although there is no perfect investment. If gas prices are going to remain high, that should do well for oil and gas producers and refiners. That does mean that people will generally go about their normal lives and not be a shut in, for during COVID people did not travel and gasoline usage fell, which sent oil companies share prices down.

There are more questions than answers, till the next time – to raising questions.