Oil companies have largely taken the blame for our”record high” gasoline prices. But, are oil companies really to blame for our current situation?
Examine the facts:
In 1950, $1 would buy you a lot more than it would today. What cost you $1 in 1950 will now cost you $8.78 in today’s dollars. In 1950 gas prices were about 30 cents a gallon. If we adjust for inflation, gasoline prices should be $2.64. This is assuming taxes remained the same.
But taxes have gone up. In 1950, taxes on a gallon of gas amounted to 1.5%. Today, taxes on a gallon of gasoline make up 20% or more of the posted gasoline price.
That 30 cents a gallon in 1950 should cost you about $3.13 today. But this assumes supply and demand has remained constant. It hasn’t. China and India are probably the most visible examples of this. China and India are quickly rising to the top of the “food chain” in terms of consumption, and they are requiring more and more energy every year.
Add to this the fact that the United States hasn’t built an oil refinery since 1976. Government regulation has pushed this issue for the last 30 years. Some countries have nationalized their oil industry, making investors nervous which in turn causes a risk premium to be priced into oil (thus affecting gasoline prices).
As for the claims that oil companies post “excessive profits”, consider that 9.5% of the price of gasoline goes to the oil companies. 20% goes to taxes. A small percent goes to gas station owners and the rest is used up in the cost of production and shipping.
Politicians often tell us about “greedy” oil companies. But if “windfall profits” were the real issue, why not go after other industries who have larger profit margins than oil companies?
For example: The profit margins for the [Periodical] Publishing industry is 24%, the shipping industry has 18% profit margins, application software boasts 22% profit margins, the tobacco industry rakes 19%, water utilities operate at 10.2%.
How do we solve this problem? Do we cut back on distribution? No, that will cause a bigger problem. What’s another solution? Legislate tighter controls and regulations on oil company profit margins? That will cause oil companies to jack the price even higher in an attempt to meet shareholder expectations and stay in business.These companies already operate on thin margins.
A third option is to leave them alone. Tell your representatives to eliminate coercive laws, regulations, and then demand lower taxes and spending in Washington.
It is easy enough to blame oil companies for the “record high” gasoline prices we are now facing in this country. But, one must ask: are gas prices really outrageous? And secondly, are the oil companies really to blame for our current situation?
But, let’s examine the facts:
In 1950, $1 would buy you a lot of goods and services. Today, that same dollar is worthless in comparison. What cost $1 in 1950 now costs $8.78 today. Gas prices in 1950 were about 30 cents a gallon. Today, adjusted for inflation, gasoline prices should be $2.64, assuming taxes remained the same.
But taxes haven’t stayed the same…not even close. In 1950, the tax per gallon of gasoline was roughly 1.5%. Today, taxes on gasoline make up about 20% of the posted price of gasoline, and a significant portion of the cost you pay to fill ‘er up.
Still, that 30 cents a gallon in 1950 should cost about $3.13. But this assumes supply and demand has remained constant. They haven’t. China and India are probably the most visible examples of this. China and India are quickly rising to the top of the “food chain” in terms of consumption, and they are requiring more and more energy every year.
The last oil refinery built in the United States was completed in 1976. Government regulation has has forced this issue for more than 30 years. This is likely why building a refinery right now will have little immediate impact on the price of oil. It is, as they say, “too little, too late”. Buying oil from countries who have nationalized oil fields puts a risk premium into the price of oil that we must buy from them.
Lastly, about 9.5% of the price of gasoline goes to the oil companies. A whopping 20% goes to Federal, State, and local taxes. A very small percentage goes to privately held gas station owners and the rest is used up in the cost of production and getting the product to market.
If “windfall profits”, or high, “excessive” profit margins were the real issue, why not go after other industries who bring in much larger profits than oil companies?
For example: The profit margins for the [Periodical] Publishing industry is 24%, the shipping industry has 18% profit margins, application software boasts 22% profit margins, the tobacco industry rakes 19%, water utilities operate at 10.2%.
How do we solve this problem? Do we cut back on distribution? No, that will cause a bigger problem. What’s another solution? Legislate tighter controls and regulations on oil company profit margins? That will cause oil companies to jack the price even higher in an attempt to meet shareholder expectations and stay in business.These companies already operate on thin margins.
Of course, we could just leave them alone. We could demand fewer laws and regulations and, of course, reduced government spending along with lower taxes. After all, that’s how this country became so wealthy and technologically advanced in the first place. They call it “dance with who brung ya”.
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