Who Really Gets Rich Off High Gas Prices?

August 7, 2012

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 this summer. It is in situations like this that blame is immediately levied on greedy oil company owners and gas station administrators. However, further analysis shows that these parties deserve little blame, says Drew Johnson, a senior fellow at the Taxpayers Protection Alliance.

This is first true in the sense that the portion of gasoline prices that are siphoned off by oil companies and gasoline stations is relatively small.

  • Crude oil costs make up about 76 percent of the cost of gasoline, according to U.S. Energy Information Administration (EIA).
  • Thus $2.66 of a $3.50 gallon of gasoline is set by global markets reacting to supply and demand.
  • Further, the refining process, in which gasoline is extracted from crude oil and other ingredients are added, is responsible for 6 percent of the cost of gasoline, according to the EIA.
  • Distribution and marketing -- this includes the shipping and transportation of the gasoline, a markup to cover retailers' expenses, and any advertising created to appeal to customers -- constitutes another 6 percent of gas prices.
  • The remaining 12 percent goes directly to federal, state and local governments in an array of sales and excise taxes.

This distribution of the profits of gasoline is encompassed in the following comparison: Exxon, the quintessential oil company that is vilified for high prices, made profits of seven cents per gallon in 2011, while governments at every level reaped 50 cents per gallon through taxation.

Furthermore, this exploitation of a necessary good for taxation purposes seems poised to continue to increase over the near term. Local tax jurisdictions are increasingly levying taxes of their own, adding to already existing state and federal taxes.

  • In California, 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 current average of $3.80 per gallon.
  • Las Vegas has enacted a similarly burdensome 10-cents-per-gallon tax of its own.

Source: Drew Johnson, "Who Really Gets Rich Off High Gas Prices?" Wall Street Journal, August 2, 2012.

 

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