Rising Fuel Prices Make A Fourth Stimulus Check More Urgent Than Ever

Stimulus Check
Stimulus Check

Even as average gas prices in America top $5 a gallon, the economy continues to be squeezed, and politicians on both sides of the divide are trying to pin the blame on various factors. While the Republicans are firm in their belief that it is solely due to the third stimulus check under the American Rescue Plan Act signed by a Democratic President, and not the first two, signed by the Republican Trump, the Biden administration has said that it was inevitable and more a result of multiple factors including the war in Europe.

The previous biggest price rise started in 2001 and continued till the 2008 recession, at a time when George W. Bush was President. The prices then rose from around $1 to $4 a gallon. The recent increase before the present one was under Trump when it went up to $3 a gallon.

But present-day gas prices are not to be blamed merely on the policies of the government in power when they go up or down. Gas prices are more affected by market forces, and blaming them on the stimulus checks is being blind to the realities of the present situation.

Can Present Gasoline Prices Fuel A Recession As In 2008?

Gasoline prices are nearing an average of $5 a gallon across the US but while consumers are feeling the pain, prices are not yet at the level that would push the country’s economy into a recession, feel economists.

But they warned that while the breaking point price is unclear, a recession is a strong possibility if fuel prices rise to an even higher level and stay there for extended periods.

The national average for a gallon of unleaded gas was $4.97 this week, up 65 cents in just a month. The pain at the pump has been compounded by an all-around increase in prices as essentials and utility prices have shot through the roof. Inflation is at a 40-year high of 8.3% this spring. And the surging prices of natural gas are leading to a higher price of energy overall while rent and food also inch higher.

Economists have been wary of the influence of gas prices on consumer sentiment and the expectation of further inflation. But they do not that a strong job market and rising wages are insulating against further inflation and higher prices at present. Unlike in 2008 when the rise in gasoline prices went along with the economic recession.

The efficiency of vehicles and the switch to electric and hybrid vehicles have meant less fuel consumption for consumers. There is also the issue of work flexibility as more people have started working remotely or going to the office on a part-time basis, cutting down on commuting.

States Try To Alleviate Gas Price Pains With Stimulus Checks

With the average price of gasoline creeping past the $5 a gallon mark nationwide on Saturday, consumers and businesses are badly feeling the strains. It has also compounded the intractable political challenges for the Biden administration.

The spike in diesel, gas, and oil prices has saddled businesses across the spectrum with higher costs and has forced them to raise prices on all products and put a stop to any new investments. It risks a slowdown in consumer demands as households are forced to cut back on non-essential expenditures.

Gas prices on their own may appear to only a relatively tiny portion of the budgets of most families. But energy prices are crucial to the functioning of any economy from a broader perspective. An increase in price, especially at this level, shoots up the prices of products and services in every other sector.

High energy prices portend an economic downturn and there are already signs of that happening as consumers react to high prices and reduce their expenditure on other services and goods. Thus a recession is around the corner, feel many analysts.

To directly address the issue of rising gas prices, Governor Gavin Newsom has outlined an $11B proposal that includes gas card stimulus checks that are designed to offset the rising cost of gas. Gas prices in California are the highest in the country with the average at around $6 a gallon in Los Angeles.

The plan entails a $400 stimulus check in the form of a gas card for each vehicle registered in the name of a Californian. The current plan would allocate the stimulus check through the debit card to all vehicle registrants and includes electric vehicle and motorcycle owners. Income will not be a bar in this case.

The stimulus check payments would be restricted to a maximum of two vehicles per household, which comes to $800 a card. Households with multiple vehicles registered to different members of the family could end up with far more than the maximum stimulus check planned by the administration.

Residents of the state who do not own a registered vehicle would not receive a refund. Instead, around $750M has been set aside for transit cards to be used in rail and transit facilities to travel free or at a substantially reduced fare.

The proposal is expected to cost the most of multiple proposals that have been discussed in the state legislature. Newsom’s $11B plan includes $9B in tax refunds to drivers, $600M to pay for a pause in sales tax on diesel for a year, $750M for the transit stimulus check, and $523M to put a halt to inflationary increase in diesel and gas excise taxes.

Gov. Newsom’s plan will be subject to its approval by the legislature and could put him at odds with Assembly and Senate leaders who came up with proposals of their last week. It includes stimulus checks to provide relief from the increase in the cost of services and goods. The plan centers around a $200 stimulus check in the form of a rebate to each taxpayer and their dependents. It excludes the top 10% of earners in the state. This proposal would give equal money to 90% of Californians, whether they own a vehicle or not.

Newsom’s plans have been attacked by advocates for low-wage earners. They point out that the proposal could disproportionately benefit those with the financial means to own a car or even multiple cars, while almost leaving out non-owners. Environmentalists say that it encourages people to become more reliant on fossil fuels than on depending on means of mass rapid transport systems.

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