|Government is big winner when gas prices rise|
|Written by Drew Johnson|
|Wednesday, January 30, 2013 12:28 AM|
With the robust interest in the area regarding gas prices, here is an opinion that sheds light on the profit game in the petroleum industry.
With the average price of gas in America hovering around $3.50 per gallon for regular unleaded, it costs more than $50 to fill a typical car’s 15-gallon tank.
But why does gas cost so much?
You may blame high gas prices on rich oil company executives or greedy gas station owners. But the truth is, governments rake in a larger profit than anyone at the pump. And with gas taxes on the rise in many parts of the country, there’s no relief in sight.
The price of a gallon of gas is based on the combined cost of four different expenses: the price of crude oil, cost of refining/manufacturing gas, distribution and marketing expenses, and amount of taxes levied on gasoline.
Oil costs comprise about 76 percent of the cost of gasoline, according to U.S. Energy Information Administration. That means $2.66 of a $3.50 gallon of gasoline is set before the oil is even refined and turned into gas.
Global markets, reacting to supply and demand, determine the cost of crude oil. Just like any commodity, from gold to corn, a shortage in supply or an increase in demand leads to a rise in prices.
Refining oil to manufacture gas is the next step in the process, and the next expense for drivers.
During refining, gasoline is extracted from crude oil, and additives, including lubricants and detergents to reduce engine deposits, are added.
As of January 2012, the EIA found that the refining process was responsible for 6 percent of the cost of gas.
Distribution and marketing, the part of the process most apparent to consumers, constitutes another 6 percent of gas prices. That portion of the cost includes shipping and transportation of gasoline, a markup to cover retailers’ expenses, and advertising.
The remaining 12 percent, or almost 50 cents per gallon, goes directly to federal, state and even local governments in an array of sales and excise taxes.
The federal gas tax is 18.4 cents on every gallon of gasoline sold in America.
State gas tax rates vary from a low of 8 cents per gallon in Alaska to a jarring 49 cents per gallon in New York. Other states where it’s steep to fill up include California and Connecticut, each with 48.6 cent per gallon state gas taxes, and Hawaii at 47.1 cents per gallon.
California’s local sales and excise taxes on gasoline average 3.1 percent, according to The Los Angeles Times. That works out to about 12 cents in local taxes for each gallon of gas, based on the state’s $3.80 a gallon average.
Believe it or not, government makes far more from gas sales than all of the oil companies put together.
Gas taxes are particularly unfair because they hit the poorest people the hardest. Most people have to drive, whether to work, to the grocery store, to pick up kids from school or any of the dozens of other reasons we pull out of the driveway each day. These responsibilities don’t change whether you make $25,000 or $250,000 each year. The only difference is for someone struggling to make ends meet, paying 50 cents per gallon in taxes, may be the difference between driving to work and putting dinner on the table.
The next time you begin to blame oil companies, speculators or service stations for high gas prices, remember, no one get richer off of gasoline than government.
Drew Johnson is a senior fellow at the Taxpayers Protection Alliance (TPA), a nonpartisan, nonprofit educational organization dedicated to a smaller, more responsible government. Visit TPA online at www.protectingtaxpayers.org.
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