Oil Price Gouging - Island of Sanity

Island of Sanity



Economics

Oil Price Gouging


As I write this (May, 2006), gas prices are skyrocketing. Congress has called for investigations of the oil companies for price gouging.

According to the United States Department of Energy, in 2004 -- the latest year for which statistics are available -- the oil companies average a profit of 17 cents per gallon of gasoline sold. This is down from the 18 cent per gallon average of the past decade. I've heard some press reports recently claiming that oil company profits in 2006 are up to 20 to 30 cents per gallon. Maybe that's true or maybe it's sensationalism.

At the same time, the federal government imposes an 18.4-cent per gallon gasoline tax. This tax was passed as a temporary tax to last just two years. That was in 1932. The tax then was 1 cent. Just before the two years ran out Congress extended it to continue until the federal budget was balanced.

On top of that the states impose an average of 28 cents in sales and excise taxes.

So for every gallon of gas sold, the oil companies make perhaps 20 to 25 cents, while the government makes 46 cents. (This only counts per-gallon taxes: On top of this the oil companies have to pay income taxes, property taxes, franchise taxes, etc.) The government makes over twice as much profit on gas sales as the people who actually explore, pump, refine, and distribute it. And then they accuse the people who do the work of price gouging.

© 2006 by Jay Johansen


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