Thought for the Day - 16 June 2007

"Congress just passed a law against gas station price gouging. You know how you can tell if a gas station is price gouging? If the sign says open." - Jay Leno

This joke captures the mindset of Congress exactly. If you make a record profit because you sell a record amount of a product, then you must have done something illegal. Or you are a Congressman trying to make it appear like you are doing something. Never mind that record profits also signify that record taxes (sales & excise) were collected on the gasoline because of the record amounts of sales. & add the resulting record income taxes (local, state & federal) as well as other taxes the gas companies, wholesalers & retailers pay out of the gross profits, I'd say that the local, state & federal governments made out a lot better than they want to admit. But do you hear Congress crying about these record tax revenues? Do they act like they are gouging us by the high taxes?

(Source: American Petroleum Institute, Tax Foundation. August 2005)

This map shows the combined state & federal excise taxes on a gallon of gasoline in 2005 (Most states tax levels have gone up since then.) This doesn't include state & local sales taxes. In DBQ it is 7 cents on the dollar. Right now that adds about another 19 -20 cents to the price of a gallon. As of March 2007 (according to the above sources) Iowa & Federal excise taxes came to 40.4 cents. Add the sales tax & you come to a total of about 59 - 60 cents per gallon. Gas is selling for $2.999 in DBQ. Lets split the difference & use 59.5 cents for the total in Iowa. That means that about 19.85% of the price of a gallon of gasoline is taxes in Iowa. Yes, the sales tax is paid on the part of the cost of gas that comes from the excise taxes. (Some states exempt the state portion from the sales tax.) Yet another dirty secret the government doesn't want you to know.

This chart to the left shows (roughly) what makes up the cost of a gallon of gas. The markup by the retailer is not included as it varies from state to state. Also, some states have a minimum markup law that requires them to charge a minimum amount above their costs. (Check here for a full explanation of how the DOE figured this.)

(Chart Source: U.S. Department of Energy)

According to ConocoPhillips, they make about 10 cents profit per gallon. Lets see now, that means that about 3.3% of the price of a gallon of gas in DBQ is the oil company profit. Compare this to the nearly 20% of the price that comes from taxes. The retailer comes out even worse. According to the Petroleum Marketers and Convenience Stores of Iowa (PMCI) a retailer in Iowa makes about 1% gross profit that he has use to pay things like labor, rent, freight, property taxes, insurance and utilities. So net profit is even less. (Note: The different sources yield slightly differing numbers. So the actual amounts may vary, but my numbers give a good approximation.)

No matter how you slice it, the various levels of government make still make more on a gallon of gas that the gasoline companies, the wholesalers & retailers combined. So, who is really doing the price gouging?