Latest posts by Jim Johnston (see all)
- Price Controls, Whether For Labor Or Housing, Don’t Work - July 9, 2014
- Adding Economics to the Immigration Debate - May 20, 2014
- Encrypt Everything! - February 3, 2014
Drew Johnson’s piece in the Wall Street Journal did us motorists a great favor by showing that the government take from the price of gasoline is seven times the profit earned by a major oil company, Exxon for example. My only complaint is that he left out a lot of taxes which when added in, more than doubles the governments’ take.
First, it should be noted that the federal and state excise taxes on diesel fuel are higher than on gasoline. Next, several states apply sales tax on motor fuel. For example, here in Chicago, the combined state, county and city sales tax totals 9.5%. That adds 30 or so cents per gallon to motor fuels in my neighborhood.
Then there are the federal royalties and bonus bids, and state severance taxes levied on domestic crude oil production. Do not forget production taxes are also imposed by foreign governments on crude oil imported to the United States. When the revenues gained by the foreign state petroleum companies that support many totalitarian governments and their nefarious projects are added to the domestic production, another buck or so is tacked on to the total price.
The ordinary business taxes must also be added to domestic production, refining, marketing and retailing costs. It should be acknowledged that not all the business taxes are passed forward to motorists. That depends mainly on crude oil and motor fuel demand elasticities. The bad news is the oil demand is very inelastic. Thus, most of the taxes on producers, refiners, marketers and retailers are indeed passed forward to motorists.
No calculation of the government burden on consumers would be complete without accounting for the cost of regulation. Reformulated gasoline is perhaps the most onerous of the regulations. Twice a year on different dates, refiners serving each major metropolitan area must change the gasoline formulas for three grades. Since demand due to just weather variations makes refining and inventory building into nightmares, the costs are higher than would be otherwise. It could be argued that the gain to the environment is much less than the cost.
I conclude that the total tax and regulatory costs of supplying motor fuels to motorists accounts for more than half the price.
That suggests a thought experiment when you look at the bill at the pump. Without any profit, would there be any motor fuel? Without taxes and regulation, would there be any government? Savor that latter thought.