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This Speakout has not been edited

By Robert Hardaway

Few politicians can resist the urge to exploit consumer angst over gasoline prices, and thereby deflect where the blame certainly lies — with them.

Here are 10 things the politicians won’t tell you:

1. At over $3.00 a gallon, the U.S. inflation-adjusted price for gasoline in May 2007 is now less than it was in 1981, a remarkable decrease in price over a 25 year period during which real prices in other sectors, such as health and education have tripled and quadrupled.

2. This decline in the price of gasoline since 1981 is enjoyed almost exclusively in the U.S. In most other developed counties in the world, the price of gas is at least double what Americans pay. Consumers in the Netherlands now pay an average of $7.77 gallon, while those in Great Britain pay over $7 and consider it a bargain.

3. The gross profit margins of the major oil companies is far less than that for many other sectors, such as beverages, electrical equipment, chemicals, and computers.

4. At present gas prices, the major oil companies make a profit of between 10 cents and 12 cents a gallon. (If you really think that’s a lot, buy the stock; but most people feel investing in oil companies is a pretty risky business-witness the devastating losses oil company investors lost during the 1980’s).

5. At present prices, combined federal and state government profit (i.e. taxes) on each gallon of gas is 28-68 cents a gallon, depending on which state you live in. Pelosi’s San Francisco enjoys tacking on an extra 26 cents bite.

6. As a result of gas prices in the U.S. which are less than half that in much of the industrialized world, gasoline consumption in the U.S. increased dramatically during the last year.

7. Oblivious to, and largely insulated from the $7-8 per gallon consumers in other industrialized countries now pay, energy-greedy Americans continue to buy such gas guzzling behemoths as Hummers and SUV’s at a feverish pace.

8. If government singled out oil companies for a confiscatory 50% profit surcharge, it is tempting to think that the price of gas might decline by up to 6 cents a gallon, say from $3.38 a gallon to $3.31 a gallon; in fact, gas prices would soar, as investors would no longer capitalize oil companies (turning instead to industries with higher profits, such as beverages and cigarettes). The oil companies would then either have to cut back exploration (Exxon alone has invested $15 billion in new capital investments) or go out of business, thus causing supplies to tighten and prices to skyrocket.

9. Crude oil prices, which make up 90% of the total cost of running gas refineries, are set by the international market of supply and demand, which fluctuates hourly, and not by private companies; while the major oil producing countries can form cartels (such as OPEC) which can set prices at higher than a free market, these countries are not subject to U.S. antitrust laws.

10. If government is serious about both curbing oil company profits as well as curbing U.S. reliance on foreign oil, the only way to do it is the way the Europeans do it: a gasoline tax that raises the pump price of gas to about $8. And that’s one thing you can be sure the politicians will never, ever tell you.

Robert Hardaway is Professor of Law at the University of Denver Sturm College of Law, and the author of “Population, Law, and the Environment” (Greenwood Press).

READER COMMENTS

Paul,

"Ultimately, taxpayers bear the burden of that extra cost for gasoline, and the government bears none of it."

Bull!

If the tax wasn't there, the price would be the same (whatever the consumer was willing to bare - supply and demand) and the additional revenues would go to the investors.

The only difference would be a national and local highway system in disrepair - and that would eventually cut down on demand and lower prices.

If the governments stopped taxing, would the oil company investors build the roads - free?

Paul,

"Ultimately, taxpayers bear the burden of that extra cost for gasoline, and the government bears none of it."

Bull!

If the tax wasn't there, the price would be the same (whatever the consumer was willing to bear - supply and demand) and the additional revenues would go to the investors.

The only difference would be a national and highway system in disrepair.

"If government singled out oil companies for a confiscatory 50% profit surcharge, it is tempting to think that the price of gas might decline by up to 6 cents a gallon, say from $3.38 a gallon to $3.31 a gallon; in fact, gas prices would soar, as investors would no longer capitalize oil companies (turning instead to industries with higher profits, such as beverages and cigarettes)"

They better not leave yet:
Coca Cola - $5 billion net in 2006
Budweiser - $2 billion net in 2006

Exxon - $40 billion in 2006

Big Tobacco Different Story:
Altria - largest US tobacco company - good investment if morality is no concern - $56 billion worldwide in 2006

Reply to Anonymous Too --m
You note that the oil companies made more profits from gasoline than the federal government from gasoline taxes. Considering that the oil companies must pay for finding, extracting, shipping and refining the oil into gasoline...and the U.S. government incurs none of those expenses...what is "unfair" about this?

The U.S. government arbitrarily proclaims a tax on gasoline, with no investment or responsiblity to provide that product to consumers, and makes billions, which they mostly fritter away on ridiculously wrong-headed programs that promote dependence on (surprise!) government. Ultimately, taxpayers bear the burden of that extra cost for gasoline, and the government bears none of it. You squawk about oil company profits, which after all come from our voluntary purchase of their product, yet obviously condone the government's imposition of extra gasoline charges?

Perhaps you've never studied history, especially the woeful track record of your socialism and its horrible impact on human beings? Oh, no, that's too difficult, isn't it, and not nearly as gratifying as slamming "big business"? Your ignorance, willful or not, is stunning, as is your arrogance, that government control of business would be a net gain for the citizens of this country. Yet I'm sure you have a lot of "self esteem," don't you? Another product of the indoctrination of government schools in the past thirty years.

Reply to Anonymous Too --m
You note that the oil companies made more profits from gasoline than the federal government from gasoline taxes. Considering that the oil companies must pay for finding, extracting, shipping and refining the oil into gasoline...and the U.S. government incurs none of those expenses...what is "unfair" about this?

The U.S. government arbitrarily proclaims a tax on gasoline, with no investment or responsiblity to provide that product to consumers, and makes billions, which they mostly fritter away on ridiculously wrong-headed programs that promote dependence on (surprise!) government. Ultimately, taxpayers bear the burden of that extra cost for gasoline, and the government bears none of it. You squawk about oil company profits, which after all come from our voluntary purchase of their product, yet obviously condone the government's imposition of extra gasoline charges?

Perhaps you've never studied history, especially the woeful track record of your socialism and its horrible impact on human beings? Oh, no, that's too difficult, isn't it, and not nearly as gratifying as slamming "big business"? Your ignorance, willful or not, is stunning, as is your arrogance, that government control of business would be a net gain for the citizens of this country. Yet I'm sure you have a lot of "self esteem," don't you? Another product of the indoctrination of government schools in the past thirty years.

AnonymousToo(Rush Limbaugh?)

Moneyweek.Com - "Part of the reason that US gasoline prices are so high is because refinery capacity is running at near-historic lows."

92 days per quarter x 385 million gallons per day consumed = 35,420,000,000 gallons consumed in US quarterly. At $0.184 cents per gallon federal tax, the US federal government makes $6.5 billion net profit; oil companies $40 billion net profit - approximately 700% higher.

President Shell Oil: 'If you are an investor who is getting ready to put several billion dollars into expanded refinery capacity, would you do that when the president says we want less gasoline (ethanhol)?" Hofmeister asked at the Cleantech 2007 conference in Santa Clara, Calif.

NPR -
"Exxon Mobil reports quarterly profits of more than $10.3 billion, the second-best quarter ever for a U.S. company. Exxon Mobil's mark is topped only by the company's own record, which it set late last year.
With other large oil companies also announcing earnings in the billions for the quarter, critics charge that the record profits come at the expense of consumers, who are paying an average of $3 a gallon for gasoline this week.
Recently, BP and Royal Dutch Shell both reported profits of more than $7 billion. Conoco Phillips says it made more than $5 billion in the quarter. Chevron will announce its earnings Friday, which is expected to push the total for the five largest oil companies to well above $30 billion. "

Hey anonymous - have you ever heard of volume?That is why their profits are so large. You can go to theese corporations websites and find all of the information you would ever want to know about their financials. You may be saddened to truly see that their profit per gallon is substatially less than the federal governments tax revenue per gallon. Of course then you would be letting the truth get in your way of your blind hatred for free market capitalism.

"3. The gross profit margins of the major oil companies is far less than that for many other sectors, such as beverages, electrical equipment, chemicals, and computers.

4. At present gas prices, the major oil companies make a profit of between 10 cents and 12 cents a gallon. (If you really think that’s a lot, buy the stock; but most people feel investing in oil companies is a pretty risky business-witness the devastating losses oil company investors lost during the 1980’s). "

If that is true then how can an oil company make $40 billion in net profits in one quarter - the highest recorded profits in history? Just curious.

"The oil companies would then either have to cut back exploration (Exxon alone has invested $15 billion in new capital investments)" - pocket change when you consider they're raking in a possible $160 billion in a year in net profits, not gross. If they had invested some of their money into refineries, which they haven't in 30 years, supply would be greater and prices would be lower. Although oil is purchased on the world market, refining is done here and they have chosen to keep supply limited.

Well Bob, how about the CEO of Exxon oil donating his yearly pay package of $29 million? How about Exxon, not making record profits every quarter and giving the consumer a break for a change.
Lets talk about the auto and oil companies in the US lobbying against mass transit and encouraging gas consumption. Oh, the poor oil companies....they are just like drug dealers, now that they have us hooked with no other options, they will just raise the prices.

You got that right Professor. And if we throw in the fact that 85% of the outer continental shelf is out of bounds, ANWR is out of bounds and that we haven't built a nuke power plant or crude oil refinery in almost 30 years, its amazing that we aren't yet paying $10 p/g.

Add in the government's oversized take at the pump, and its quite obvious where the gouger resides.... Washington, D.C.

Mr. Hardaway,
I'm sure it will not be long before people start to say you are being paid by the oil companies. It is a very sad day in this country when the Government that is making more profit than the free market corporations and they then are going to assess an additional profit surcharge. Do these politicians not realize who they are truly hurting? Corporations will not pay taxes - consumers will as the corporations will only pass these on to the consumer in the form of ever higher gas prices.

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