Wednesday, November 02, 2005

The Real Gouge

I have heard rumblings over the last few weeks of left-leaning officials have been making an effort to convince people that they are experiencing price gouging as a result of events in the Middle East, hurricane season, and greed on the part of oil companies. Certainly, gas prices have decreased appreciably since Hurricane Katrina, so perhaps that would lead some to believe Big Oil was taking advantage of their pain. The MSM has made sure to make a big stink about oil companies reporting record profits while minorities and women suffer from the effects of the severe storms this year. After all, conflict sells newspapers.

Yesterday, Arkansas Senator Mark Pryor said consumers need to be protected from gouging when gasoline is in short supply. I couldn’t agree more, which is why I think state and federal governments need to lower or eliminate taxes on gasoline and stop gouging consumers.

In order to continue selling gasoline to you, the consumer, oil companies need to make a profit. So for the time being, let’s assume the industry 9.1% profit margin is reasonable (I think it is) and examine why the price of gas is so high. The price of gasoline depends on a number of factors. As of September 2005, 50% of the price you pay for gasoline is to pay for the crude oil, 8% goes toward distribution and marketing, 27% goes toward refining costs and profits.

Federal and local taxes account for about 15% of the total price of gas in the United States (down from 31% in 2002). Federal excise taxes are 18.4 cents per gallon, and state excise taxes average 21 cents per gallon. Some states also levy additional sales taxes, as well as local and city taxes. In Europe, gas prices are far higher than in America because taxes on gas are much higher. For example, gas prices in England have risen as high as $6 per gallon, with 78 percent of that going to taxes.

To put it in perspective, I was driving home from work today and saw that gas was $2.35/gallon. That means 35.25 cents per gallon goes directly from my pocket to the government: 18.4 cents to the federal government and 16.85 cents to local governments. Multiply that by the 19.1 gallons in my tank ($6.73 per fill-up), about four times a month, which means that I pay $323.17 a year in taxes on gasoline (for just one of my two cars, not counting extra driving on vacations and fluctuation in prices, we have to assume some things are static for this little mental exercise).

Since 1990, the Gasoline tax has transmogrified from a scheme for deficit reduction and then to a use tax. Due to the faulty and politically charged pseudoscience of global warming and general environmental hysteria, gasoline taxes were nearly double what they are today in order to discourage use and force people to seek alternatives. The problem is the same as it is with use taxes on alcohol and tobacco; the tax doesn’t discourage use and the government becomes dependent upon revenues from the tax so it doesn’t really want you to find an alternative to the commodity it’s taxing. It remains to be seen whether the recent spike in sales of hybrid vehicles is a fad due to the spike in gas prices or will be an ongoing trend.

Some folks will say that they don’t mind paying taxes like this because it benefits society as a whole. The problem is that it doesn’t, since government is incapable, by design, of using your tax dollars effectively. It collects taxes on your income before you even get to see it, and then charges taxes whenever you buy something and still can’t get that pothole down the street filled. That has a lot to do with our current expectations of government to coddle and support us, when they should be worrying about infrastructure, defense and civil preparedness PERIOD. I understand that government needs money to perform these functions, but getting us coming and going is excessive. No tax means $2.00 per gallon of gasoline. No income tax, but a consumption tax on gasoline means that even if gas is slightly more expensive, I’ll be able to afford it. But I digress; I’ll save the consumption tax (fair tax) argument for another day, along with other things the government can stop doing to the petroleum supply chain to help consumers sleep a little better at night.

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