Government Gouging On Gas

by Kerry Thomas

April 27, 2006

So who’s to blame?

That seems to be the question everyone is asking these days, about the rising costs of gasoline. Instead of focusing on solutions, many of our elected leaders want to focus on playing the blame game. And taxing whomever they decide is to blame for the high gas prices.

Senator Charles Schumer (D-NY) is hellbent on imposing a windfall profits tax on oil companies. Senator Dick Durbin (D-IL) dismisses any talk of reduction or suspension of the federal excise tax on gasoline. Instead, he insists, Exxon Mobil’s announced quarterly profits of $8.4 billion (which paid it’s stockholders $1.37/share) are gouging consumers. And he wants to impose even higher taxes on Exxon.

Wisconsin’s Democrat Governor Jim Doyle is calling for his lapdog of an Attorney General Peg Lautenschlager to investigate price gouging in Wisconsin. The Wisconsin Assembly is even considering legislation (ASA1-AB786) “to prohibiting charging grossly excessive prices for motor vehicle fuel.” They leave it to the Attorney General to determine what is “grossly excessive.”

Maybe these same government officials should take a good look in the mirror.

Exxon makes a profit (you remember profit…that’s what a company makes after it pays all the expenses it incurs to bring you it’s products) of about 9¢ on each gallon of gas it sells. Meanwhile, the federal government taxes you 18.4¢ per gallon, and the State of Wisconsin imposes another 30.9¢ per gallon in motor fuel excise taxes.

As if this weren’t enough, corporations like Exxon also pay corporate income taxes on their earnings. Wisconsin charges 7.9% in state corporate income taxes, and the federal corporate income tax rate (on corporate income that exceeds $18.3 million) is 35%.

So who’s gouging whom?

Any time a company shows a profit, there’s always some government marxist who wants to tax it. They tell us that will be the “fair” thing to do, since this company has money and there are people who have less of it. So the marxist wants to re-distribute that money as he or she sees fit. From each according to his means to each according to his needs. [See Communist Manifesto]

What these bumbling bureaucrats don’t tell you is that no corporation pays taxes. Sure they write a check to the government, but that cost is figured in to the price of doing business. The people who buy the corporation’s goods & services end up paying those taxes. Imposing higher taxes on corporations only ends up raising the price of their products.

Then there’s the government mandate of minimum markups. These are the laws that require a company to charge it’s customers the cost of the product plus a certain percentage (9.18% in Wisconsin) in markup. These laws were intended to protect the smaller retailers, but they have had the effect of making prices higher for all of us. With gas pump prices around $3/gallon, that means these laws add 21.08¢ to the price of every gallon of gas we buy.

Let’s recap here. Gar pump price of $3/gallon. Federal excise taxes are 18.4¢. Wisconsin excise tax is 30.9¢. Retailer’s mandated markup is 21.08¢. Exxon makes 9¢. The rest of the price ($2.2062) covers the costs to get that gas to you (which includes the costs Exxon has to pay to get the oil it refines into gasoline, and then getting that gasoline to the pump).

Enter ethanol. Love it or hate it, there are areas of Wisconsin and other states that require the use of ethanol, by law. Studies have shown the use of ethanol-blended gasoline reduces gas mileage by 8%-10%. Looking at the consumer economics of ethanol, at the $3/gallon price, ethanol-blended gasoline would have to cost you 24¢ per gallon less than regular gas just for you to break even. Plus you have to use 8%-10% more ethanol-blended gas to go the same distance you would drive on regular gas. Ethanol is, at best, a break-even measure when it comes to the supply of gasoline. Government mandated use of ethanol does not fix the problem.

Government laws restricting oil exploration in areas such as Alaska and the Gulf of Mexico haven’t done much to increase the supply of oil in America. Meanwhile, China is helping Mexico drill for new oil in the Gulf. China is also investing in developing the sand tars in Canada. China and India are in the middle of their own economic awakenings, and their economies are demanding more oil. There’s nothing Congress can do, there are no laws Congress can impose, to curb the growth in other countries.

America is a capitalist country. We believe in free markets. In this country, no one is forced to buy anything. We make choices, based on our own economic circumstances. When the price of anything we buy on a regular basis gets to be too high, we look for alternatives. Some of us even manage to get rich inventing new technologies and new products to compete with these once-staple items. Just look at what the invention and marketing of the personal computer did for the typewrite business.

The same thing will happen when it comes to transportation and energy. Get the government out of the way, unleash the American spirit of entrepreneurialism, ingenuity and creativity, and witness new fortunes in the making.