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Friday, February 17, 2012

The President's Numbers Are Exactly Right -- Payroll Tax Cut Will Cover the Gasoline Price Increase -- Exactly

Updates

One hour later: after posting the note below, Yahoo News has an article saying exactly the same thing -- gasoline price increase wipes out the payroll tax cut. 

Original Post

Amazing how law of big numbers works out again!

San Diego: gasoline at $3.99.

Flashback: the president predicts significantly higher gasoline prices this year.

Today: inflation at its "fastest clip" in four months -- due to energy prices.

The president, in the first link above, said that the payroll tax cut will offset the increase in the price of gasoline (which he described as "significant").

Everyone I knows tells their insurance company they drive their automobile 12,000 miles per year.

Assuming one's vehicle gets 24 miles per gallon, here are the calculations for one year's expense for gasoline at $5.00/gallon vs $3.00/gallon.
  • 12,000 / 24 --> 500 gallons of gasoline @ $5.00/gallon --> $2,500/year in gasoline --> $96 / 2 wks
  • 12,000 / 24 --> 500 gallons of gasoline @ $3.00/gallon --> $1,500/year in gasoline --> $58 / 2 wks
The difference between $96 and $58 is about $40, exactly the amount that the average worker will "get" with the payroll tax cut extension. Amazing how these things work out.

If you rush out and buy a Volt today, you can cut that gasoline bill even more, though you will have a $400 monthly payment with insurance.

I often make errors in arithmetic, so let me know if the numbers are wrong.

A family of four at McDonald's: about $28.

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