GAS PRICES AND TAXES

Gas Prices and Taxes

Kerby Anderson

April 23, 2008

It seems that everyone is complaining about high gas prices. I can predict that some of the listeners who call into my radio program will ask why the prices are so high. There are lots of answers: OPEC, speculation, limited domestic drilling, limited refining capacity, ethanol mandates, different types of boutique fuels, etc. And we also talk about who is hurt by high gas prices: truckers, suppliers, people on fixed incomes, etc.

But let's ask a different question. Who benefits most from high gas prices? If you said oil companies, you would be wrong. Certainly some of the oil companies have reported record profits. But the biggest beneficiary of gasoline sales is government.

The Tax Foundation looked at a 25-year-period (from 1975 to 2002). They found that governments have collected more than $1.34 trillion (in inflation-adjusted dollars). This is more than twice the amount of domestic profits earned by major U.S. oil companies during the same period of time.

If you look at their graph you can see, that since the early 1980s total gas taxes have always exceeded oil industry profits. Part of that reason is due to substantial hikes in the federal gasoline excise tax in 1983, 1990, and 1993.

It is also worth noting that the tax revenues continue to climb no matter what the economic circumstances. By contrast, oil industry revenues fluctuate. The graph demonstrates the economic reality that oil industry profits are highly cyclical. Although they are currently experiencing a boom, there have also been busts.

These economic facts are worth keeping in mind as Congress considers whether to implement another windfall profits tax similar to the one signed into federal law in 1980 by President Jimmy Carter. It is also worth keeping in mind when political commentators (and some politicians) talk about increasing gas taxes in order to reduce gas consumption.

The next time you hear those comments, remember that government is the greatest beneficiary of high gas prices. I'm Kerby Anderson, and that's my point of view.

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