Why GM Should Send a Thank You Note to Saudi Arabia
General Motors shares are up more than 4 percent Thursday after the automaker reported better-than-expected profits. The company earned more than $1 billion in profits last quarter, well above Wall Street’s forecasts.
A big reason for the blowout quarter was record margins in North America, thanks in large part to increased sales of trucks and SUVs. The headline at the Detroit Free Press says it all: “GM earns $1.1B in Q2 as pickup, SUV sales surge in U.S.”
Related: What's Next for Oil Prices? Look Out Below!
As a general rule, big pickup trucks and SUVs deliver higher profit margins than smaller, cheaper cars, so Detroit is always happy when large vehicles are selling. Another general rule seems to be that when gas is cheap, Americans start dreaming about gas-guzzling vehicles of all kinds, from blinged-out GMC Yukon XL Denalis to fuel-blasting Chevy Camaro ZL1s. And gas certainly has been cheap lately, thanks in large part to Saudi Arabia’s decision to maintain crude oil production levels in the face of increased U.S. production and a global slowdown in demand for energy.
Here’s a chart of gas and oil prices over the last three years, courtesy of GasBuddy. Note the steep decline starting in 2014:
As long as oil and gas are cheap, GM can probably count on selling lots of its most profitable vehicles. And with China slowing and Iran rejoining the global oil market, cheap fuel may be here for a while.
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Deficit Hits $738.6 Billion in First 8 Months of Fiscal Year
The U.S. budget deficit grew to $738.6 billion in the first eight months of the current fiscal year – an increase of $206 billion, or 38.8%, over the deficit recorded during the same period a year earlier. Bloomberg’s Sarah McGregor notes that the big increase occurred despite a jump in tariff revenues, which have nearly doubled to $44.9 billion so far this fiscal year. But that increase, which contributed to an overall increase in revenues of 2.3%, was not enough to make up for the reduced revenues from the Republican tax cuts and a 9.3% increase in government spending.
Tweet of the Day: Revenues or Spending?
Rep. Kevin Brady (R-TX), ranking member of the House Ways and Means Committee and one of the authors of the 2017 Republican tax overhaul, told The Washington Post’s Heather Long Tuesday that the budget deficit is driven by excess spending, not a shortfall in revenues in the wake of the tax cuts. The Wall Street Journal’s Kate Davidson provided some inconvenient facts for Brady’s claim in a tweet, pointing out that government revenues as a share of GDP have fallen significantly since 2015, while spending has remained more or less constant.
Chart of the Day: The Decline in IRS Audits
Reviewing the recent annual report on tax statistics from the IRS, Robert Weinberger of the Tax Policy Center says it “tells a story of shrinking staff, fewer audits, and less customer service.” The agency had 22% fewer personnel in 2018 than it did in 2010, and its enforcement budget has fallen by nearly $1 billion, Weinberger writes. One obvious effect of the budget cuts has been a sharp reduction in the number of audits the agency has performed annually, which you can see in the chart below.
Number of the Day: $102 Million
President Trump’s golf playing has cost taxpayers $102 million in extra travel and security expenses, according to an analysis by the left-leaning HuffPost news site.
“The $102 million total to date spent on Trump’s presidential golfing represents 255 times the annual presidential salary he volunteered not to take. It is more than three times the cost of special counsel Robert Mueller’s investigation that Trump continually complains about. It would fund for six years the Special Olympics program that Trump’s proposed budget had originally cut to save money,” HuffPost’s S.V. Date writes.
Date says the White House did not respond to HuffPost’s requests for comment.
Americans See Tax-Paying as a Duty
The IRS may not be conducting audits like it used to, but according to the agency’s Data Book for 2018, most Americans still believe it’s not acceptable to cheat on your taxes. About 67% of respondents to an IRS opinion survey “completely agree” that it’s a civic duty to pay “a fair share of taxes,” and another 26% “mostly agree,” bringing the total in agreement to over 90%. Accounting Today says that attitude has been pretty consistent over the last decade.
