The government and gas prices

25 May


jackson0524With gasoline over four dollars a gallon, the U.S. Senate interrogated executives from the five largest oil companies on Wednesday. At issue were record profits on the part of the oil companies, and record prices at the pump.


Patrick Leahy (D-Vt.) was perhaps the most vindictive, claiming that “people can’t afford to go to work” because of the gas prices. “The issue is simple,” he said. “People we represent are hurting, the companies you represent are profiting.”


However, Leahy’s accusations may simply be accusations among the guilty. In a 2007 study called Who Gets What from Imported Oil, the Organization of Petroleum Exporting Countries (OPEC) showed that the world’s richest countries averaged an annual income of 460 billion US dollars from oil taxes. Comparatively, OPEC claims to have made an annual average of 410 billion US$ from oil profits, suggesting that taxes form a more significant portion of the cost of oil than the industry profits. The report then partitions the cost of a liter of oil into three categories: tax, industry margin, and the cost of crude production. In 2007, U.S. taxes constituted roughly 26% of the cost, while industry profits made up less than 10%.


Another report—this one from the U.S. Governmental Accountability Office in 2007—demonstrates that gasoline price inflation is disproportionately concentrated in areas where government requirements give companies an excuse to raise prices, such as in California.


On Wednesday, CBS reported a nearly 30-cent difference across state lines—due to Illinois taxes. “It was $4.20. I can come over here and get it for $3.93,” said one customer. According to the Civic Federation, which studies political and economic issues in the Chicago area, taxes account for nearly 80 cents of a $4.00 gallon of gasoline.


In a statement released Thursday, the head of OPEC said the recent oil price surges were unwelcome to producers as well as consumers. Prolonged price increase suppresses the demand for oil and gives more momentum to the search for alternative fuels. He blamed the increase in oil prices on inflation in the U.S. dollar.


“Largely ignored was the role taxes are playing — an astounding 10 levels of taxation,” noted the CBS article on the Senate hearings. Sen. Leahy did not address the government’s participation in gas taxes, government requirements, or economic inflation, but it might have been wise to note the logs before digging for specks.


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