Taxing Drivers by the Mile
The markets drifted slightly higher again this week as earnings announcements continue to generate positive influence on investors. However, earnings season has just about wrapped up, leaving a scarcity of newsworthy stories. Perhaps this pause will give investors a brief period of rest before the next news cycle takes hold. Ultimately the next cycle will start in the next couple weeks with the Jackson Hole conference and the inevitable rumors surrounding the Fed taper and timing of interest rate hikes.
That’s not to say there hasn’t been any news. In fact, the Delta variant of COVID continues to make headline news. What’s different is that a palpable fatigue has set in and people don’t seem to be as panicked as with previous waves. While it's true that infections are up 385% over the past month to 125K per day, it is likely it will peak in the next few weeks before slowly declining once more. While this does coincide with children going back to school, it is unlikely that the steps taken previously will be reimplemented en masse.
As for the economy, there were two developments that seem to contradict each other. The first is that the consumer price index (CPI) fell below estimates, leading some to believe inflation has peaked at 5.4% annualized. However, the very next day the producer price index (PPI) was released and showed a blistering 7.8% increase which was well above expectations. While it seems natural that producers will pass along the cost increases, this isn’t a foregone conclusion. While raising prices certainly is a possibility, companies could eat the costs by reducing profit margins, or increase productivity. On that last possibility, it seems productivity rose 6.9% in the second quarter with a 3.8% increase in output and 2.9% decrease in hours worked. This gets to the heart of the debate over whether the spike in inflation is “transitory.” We’ll know soon enough.
In company news, Google is giving employees the flexibility of working from home with one caveat – it may come with a pay cut. For example, a Google employee deciding to work from home in Stamford, CT would get 15% less than if they were making the one-hour commute into New York City each day. It will be interesting to see if this model becomes more widespread. Also this week, both Fed Ex and the U.S. Postal Service (USPS) announced they will increase shipping costs during the holiday season. It seems more of us are making our purchases online, and this is putting tremendous strain on these companies particularly at peak times like Christmas. Customers can expect to pay an additional $5.95 per package for express or ground services from Oct 4, 2021 to Jan 15, 2022 with FedEx. Ground economy surcharges will run from $1.50 to $3.00 per package. As for the USPS, customers can expect to pay between $0.25 and $5.00 more depending on the size of the package from Oct 3, 2021 until December 26, 2021.
While I don’t really want to bring it up, I feel a week can’t go by without mentioning the infrastructure bill. This week the Senate passed the smaller $1 trillion infrastructure package which includes funding for roads, bridges, etc. It may even have money earmarked for the Brent Spence Bridge, but you didn’t hear that from me. However, this leaves the larger $3.5 trillion “human” infrastructure bill. How this plays out is anyone’s guess. I read this week that Nancy Pelosi won’t take up the smaller infrastructure bill until the Senate passes the additional larger reconciliation bill. However, today I read there are a group of moderate democrats in the House who want a vote on the smaller bill immediately while the more progressive side of the party is demanding just the opposite. Either way the House is in recess until August 23rd. Worth mentioning, the debt ceiling will need to be raised soon which could throw a wrench into further negotiations between the vying parties. Watching the sausage being made is unpleasant. Sometimes I wonder if it wasn’t better when deals were struck behind closed doors.
In closing, I turn to something that likely won’t be mentioned much. Tucked inside the 2,702-page infrastructure bill is obscure language requiring the Department of Transportation to test the feasibility of taxing drivers for the number of miles they travel. The findings of the pilot program are to be reported to Congress within three years, with the purpose of determining whether a “per-mile” tax should be implemented to fund improvements on roads and highways. With the rise of electric vehicles, it seems unavoidable that something like this will eventually come to pass. However, it does beg the question whether this will be in addition to the $0.18 per gallon federal gas tax and average $0.30 per gallon state gas tax already levied? Now you know.
Bruce J. Mason, MBA