Who is "gouging" Whom at the Pumps?
Written by JB Williams
Evil Capitalists or Power Hungry Politicians? Washington Democrats rush to exploit yet another hot button issue warming up for the mid-term elections in November - rising oil & gas prices. It is an issue that affects many Americans and Democrats hope to convince those Americans that greedy Bush oil buddies are to blame. But as usual, the real facts are quite different from the bogus campaign rhetoric...
Who is getting rich at the gas pumps?
For starters, many average Americans who hold stock in the oil companies, either directly or indirectly through their 410k or mutual fund. But the fact is, the gross profit margin for a gallon of gas in America today, is what it has always been, on average, .08 cents per gallon, (2.5% at $3.00 per gallon). Though retail gas prices fluctuate with crude prices and supply vs. demand, the gross profit margin per gallon remains roughly the same at all times. (No evidence of price gouging here.)
However the federal government profits approximately .59 cents per gallon through gasoline taxes, 7 ½ times or 750% that of the oil producers themselves and 20% of the price at the pumps. Pay attention here, Washington liberals are attacking oil companies for their 2.5% gross profit margin, while Washington is profiting 20% per gallon. Democrats answer? Tax some more?
If oil companies cut their profit margins by 50%, it would drop the price of a gallon of gas by only .04 cents per gallon. If Washington law makers cut their take by 50%, gasoline would cost .30 cents per gallon less. If the federal government didn’t tax gasoline at all, the price per gallon at the pumps would be $2.40 per gallon instead of $3.00 per gallon and the oil companies would still be at a respectable 2.5% gross profit margin. Who is gouging whom?
Have oil companies sought to inflate gas prices for profit?
If they did, they would have to do it by increasing their per gallon profit margin. Holding their gross margin at 2.5% (.08 cents per gallon) will result in higher overall profits as consumption rises, and both consumption and prices rise during travel seasons. But it does not demonstrate any effort to “gouge” consumers at the pumps.
On the other hand, .59 cents per gallon or 20% of retail gasoline prices is certainly a demonstration of an effort to gouge consumers, but by way of taxation from the federal government. The consumer is in fact being gouged at the pumps and they have been for some years now, by our federal and state governments. Who is gouging whom?
Why have gas prices gone up so much?
They haven’t. Over the last 20 years, gasoline per gallon has increased roughly 60%, which equals an annual average increase of only 3%, which is less than the average rate of inflation.
During the same 20 year period however, the salary of every member of Congress has increased 250% or 12.5% per year. More than four times the average rate of inflation. Who is gouging whom? Who looks greedy now?
Are Americans specifically being gouged by OPEC?
Quite the opposite. The most expensive places in the world to buy gas are The Netherlands, Norway, Italy, Denmark and Belgium, all of which are now above $7.00 per gallon at the pumps. Of course, all of which are socialist governments with even heavier taxes per gallon than America.
The least expensive places in the world are Venezuela, Nigeria, Egypt, Kuwait and Saudi Arabia, ranging between .15 cents and .95 cents per gallon at their pumps. That’s because these are the largest oil saturated countries in the world.
America is the single largest consumer of oil products, yet our retail prices are very average in the world market, despite excessive federal taxation. Who is gouging whom?
Where does all the money go?
Based upon a $3.00 gallon of gasoline, the average break-down is as follows.
Gasoline Retailer $.01 cents per gallon
Oil Company $.08 cents per gallon
Refining $.29 cents per gallon
Marketing/Distribution $.32 cents per gallon
Taxes $.59 cents per gallon
Cost of crude $1.71 per gallon (delivered)
Who is gouging who?
Why is there a wide price variation between locations?
Gasoline is used by American retailers as a “loss leader” product. A means of attracting consumers into their retail establishment with at best a “break even” product, in an effort to sell other goods and services at a profit. This keeps prices at the pump as low as possible through open competition. The local stations with nothing but gas to sell will be higher per gallon on average of course.
State to state, additional gasoline taxes and refining requirements as well as distance from the closest refinery are the largest factors. California is particularly high due to their excessive taxation and environmental blend requirements as an example. These added refining requirements also means that California experiences more shortages than any other state. When they run low on supply, they can not import from a neighboring state without violating their more stringent state environmental codes. So who is gouging whom?
The Democrats answer to every problem, tax it some more?
Smelling blood in the political waters in an election year makes every issue a campaign issue perfect for exploitation and current consumer complaints over prices at the pumps is no exception.
Democrats call for an all out attack on those greedy rich oil companies, which is like throwing red meat to their blue state socialist constituents who see not only corporate greed, but capitalism itself as the root of all evil in the world.
Their answer to high gasoline prices? Launch yet another “independent” (partisan) investigation into high gasoline prices during an election year when winning congressional seats in Washington might be the only thing that can save their failed party from extinction.
But will attacking the group making the least on a gallon of gas, the group responsible for ongoing exploration and production of gasoline, solve the problem? Should some new “windfall-profit” tax aimed at penalizing American companies for turning a profit be imposed?
In a word, NO! This attitude is the cause of the problem to the degree you can prove any real problem exists at all. If we should penalize oil companies for making .08 cents per gallon gross profit, how much should we penalize our federal government for making .59 cents per gallon?
Corporations don’t pay taxes!
They do collect and remit taxes. But every penny of taxes placed on corporate income is passed on to the consumer in the form of higher retail prices, just like the .59 cents per gallon of federal taxes being collected on behalf of the federal government at the pumps today.
So will electing Democrats who hope to tax gasoline (or any corporate entity) even more help curb prices at the pump, the supermarket or anywhere else? If so, I’d sure like to hear how?
How do you think gasoline got to be .59 cents per gallon higher than need be? How do you think our government got to the point of consuming nearly 60% of GDP in the first place?
You show me where the problem is and who is doing the endless gouging of average Americans?
Is it the oil companies at .08 cents per gallon? Or is it the government at .59 cents per gallon, for producing absolutely nothing?
Democrats seek to increase gasoline taxes beyond the current .59 cent per gallon level. Can you explain how this will reduce prices at the pump? No…nobody can.
But you can sure demonstrate how the BS drives Bush further down in the polls... and that’s the real goal.