Just Who is Gouging Us on Gasoline?

Americans are fed up with high gas prices, and some U.S. senators are getting disgusted enough to act.  Appearing in front of an Exxon gas station last week, Charles Schumer and several other senators called for the elimination of tax deductions oil companies use in their business of finding, refining, and marketing the precious energy we use.  It is time we are outraged by blatant greed at the gas pump, they implored.  Some of us agree, but for different reasons.  Let's have the courage to name those who are getting the biggest cut from our gasoline dollars, and put a stop to it.

Understand where our money goes when we fill up at our corner station.  Oil company profit is one place: the after-tax profits earned by the most successful oil companies in America works out to about 8-9% of revenues.  That's 8 cents of every dollar we spend at the pump, and it's been much lower in years when prices are squeezed by too much supply.  Sometimes there are no profits, but rather huge costs, if mistakes that get nasty are made in exploration or transportation (e.g. Exxon Valdez and BP Gulf spills).

The senators standing in front of the gas station would have you think such profit is the biggest chunk of your purchase price -- but it isn't even close.  The taxes on gasoline at retail amount to a national average of 47 cents per gallon (including federal taxes of 18 cents, state and local taxes of 18 cents, and sales/other taxes at retail of more than 10 cents).  And before taxpayers have paid that princely sum (to people who haven't invested a penny to produce the product), the operating profits of the explorers are taxed at 34% -- which is always passed on to consumers in the form of higher prices.  States get into the act here too, taxing the retailers' profits after taxing the product at the pump.  And let's not forget the other costs that drive up the gallon price, such as drilling restrictions that force explorers 5 miles deep under the ocean, transportation regulations and taxes, refining regulations, licenses, leases, and myriads of others.

Pulling huge quantities of wealth out of the ground isn't easy.  Finding and refining oil takes knowledge of geology, drilling technology, finance, transportation logistics, and environmental science.  Pulling even larger amounts of wealth out of taxpayers, however, takes only two things: ignorance and envy.

You see, average Americans have no concept of what it takes to deliver a gallon of gasoline to their neighborhoods -- for 1/10 the price/oz. of the latte they buy on the same corner.  Most Americans aren't geologists.  And they don't like high prices.  So Americans routinely grumble about oil company profits, without any knowledge of the relative size of them or what risks it takes to earn them.  Yet it is clearly the government which benefits most from our purchases at the pump, without lifting a finger to make the product.

Ignorance and envy are something our senators are banking on when they rail against oil profits.  Our media culture loves to help them.  But if corporations are to be "accountable" for egregious profits, where is the senatorial and media outrage over other company profits?  Microsoft earns record profits of $18 billion, more than 30% of its revenues net of all taxes.  The latte-maker Starbucks earns 11% of revenue.  But there is no move from Mr. Schumer & Friends decrying the write-offs of Microsoft's development costs.  Why isn't Mr. Schumer standing in front of Best Buy railing against the taxpayer "subsidy" of Microsoft?  Do Microsoft's contributions to his campaign have any influence on his choice of targets?  Is Microsoft (or any company) more worthy of egregious gain than Exxon?

If the public weren't so ignorant and envious of such capitalist exercises as making gasoline, perhaps they might turn their attention toward the biggest cost in their lives and also the biggest reason gas prices are high: government.  If the government would spend less time punishing and restricting energy exploration and delivery, we might have more energy.  If the government, however, wants to raise the after-tax costs of producing energy, we will surely get less, driving prices higher still.

As government elites gain greater money and power from exploiting our ignorance, they posture again about taxpayers and pump prices.  But they really don't care about taxpayers and pump prices at all.  Nothing in their behavior over energy policy leads to that conclusion.  Rather than sticking up for taxpayers and consumers, the biggest pigs at the trough are looking for another way to stick it to taxpayers and consumers.  In classic Atlas Shrugged fashion, the know-nothings mooching off the productivity and ingenuity of capitalists take the public stage to throw sand in the gears of a vital American output engine.  The gouging continues.