Wall Street analysts unanimously cheered last fall when the price of oil fell
from nearly $100 a barrel in June of 2014, to almost $45 a barrel by the end
of January 2015. The theory was that the average American family, paying less
at the pump, would plow this savings into other goods and services, giving
GDP a much needed boost.
In the winter of 2014 optimism about a strong 2015 was abound. The average
household was now poised to have an extra $750 a year that would soon be burning
a hole in their pockets. Falling gas prices would free up billions of dollars
for consumers to spend next year, with the spend-happy middle class seeing
most of the benefit.
Lower prices at the pump was the equivalent of cutting taxes between $100
billion and $125 billion. Increased consumer spending as a result of lower
gas prices were predicted to add as much as a half-percentage point to economic
growth in 2015.
With first quarter GDP now running negative, it is clear this "gas tax" did
not have the simulative effect analysts had hoped for.
What Happened To Our Gas Tax Windfall?
It appeared most analysts assumed if consumers liked their gas tax cut (much
like Obama's promise to keep their health plan)...they could keep it. Unfortunately
Obamacare may be the Grinch who stole the gas tax gift meant for consumers.
An increase in what the average American pays in health care costs as a result
of the Affordable Care Act (ACA) has swallowed all the savings from the fall
in gas prices.
The first victims of Obamacare were small businesses, who quickly learned
their once sufficient coverage did not match the arduous ACA mandates. The
increase in health care costs passed on by employers caused Individual year-round
employees at businesses with 50 to 99 workers to lose $935 in take home pay
annually, while those at firms with 20 to 49 workers were out an average of
$827.50. And workers with solo coverage now pay an average of $1,081 in annual
premiums, according to a Kaiser Family Foundation/Health Research & Educational
Trust report--up a whopping 8.1% from a year ago.
But small business and the self-insured are not the only ones suffering the
Obamacare wrath. With Obamacare's onerous Cadillac tax, many who once enjoyed
lavish health care plans, curtesy of their large employer, are now paying a
lot more for premiums and out of pocket expenses.
Under this law, if an individual health-insurance policy costs more than $10,200,
the employer has to pay a 40% excise tax for the amount the policy exceeds
that threshold. For family policies, the corresponding threshold is $27,500.
This tax goes into effect in 2018 but most employers aren't waiting for the
tax to kick in. They have been busy trading in their employee's Cadillac for
an AMC Gremlin. These high deductible plans are less expensive to the employer,
allowing them to avoid the threshold and corresponding tax; but they are more
expensive to the employee--burdening them with a lot of additional costs.
And it's only getting worse for employees of larger companies. Next year,
nearly a third of large employers only plan on having the Gremlin on the lot.
That is, they are only offering high-deductible plans. This is up from 22 percent
in 2014 and 10 percent in 2010, according to a study by the National Business
Group on Health.
Fittingly, this year, employees will pay 55% more for health insurance premiums
and out-of-pocket medical bills than they did in 2010. This is taking a big
bite out of consumer's disposable income. The average worker with employer-sponsored
health insurance will pay about $2,664, or nearly 24% of the total cost of
their plan premium in 2016. Five years ago, employees paid $1,835.
When you couple this with the high deductible plans, employees will pay an
average of $2,487 in out-of-pocket costs, nearly double what employees paid
in 2009. Not too long ago half of employees had deductibles below $500; now,
only one-third do. Goodbye gas tax...hello higher health care costs.
Finally we have the previously uninsured, whom Obamacare was designed to help.
Surely they are reaping the benefit of all this "affordable care". Unfortunately,
those Obamacare recipients who count on a tax refund to balance their household
books may have to look for another way to make those ends meet. Customers who
received subsidized coverage based on their estimated income are now seeing
tax bills for part or all of the subsidy because their actual income turned
out to be higher.
The hard cutoff for subsidies occurs once incomes exceed 400% of the official
U.S. poverty rate. Going over that amount by even $1.00 can result in a hefty
IRS bill because all those subsidies go to Zero once you surpass that threshold.
Health policy analyst and former New York Lt. Governor Betsy McCaughey wrote, "For
about 1 in 4 tax filers, it's turning out to be a nightmare, with extra paperwork
and penalties." It is anticipated that at least half of subsidy recipients
owed more in taxes this year due to underestimating their income. And according
to H&R Block, sixty-one percent of those filers saw their refunds reduced
by an average of $729.
But Obama care isn't the only reason why the economy won't achieve "escape
velocity". Cheerleaders on Wall Street don't want you to focus on the other
drags to growth such as stagnant real incomes, the rise in the cost of rental
housing and the debt-disabled, overregulated condition of the nation. They
only want to talk up the positives; and then provide a myriad of banal excuses
(e.g. weather) when the economy fails to live up to their over-hyped expectations.
Q1 GDP will most likely produce a negative number for two years in a row and
now interest rates on sovereign debt have spiked across the developed world.
That doesn't bode well for a second quarter rebound in growth.
Still, the narrative on Wall Street is that Q2 will finally show a massive
boost in consumer spending from lower oil prices. But the truth is there was
no boost in retail sales when gas prices were coming down; and there is not
going to be one now that gas prices have risen by 31% since mid-January. The
decline in oil prices merely helped defray the spike in healthcare costs from
the ACA. Therefore, those expecting a Q2 rebound driven by consumer spending
from the erstwhile drop in oil prices should, unlike Ms. Pelosi, be careful
to "read the bill now that they have passed it."
