Wednesday, March 07, 2012

Breaking Down the Price at the Gas Pump

This is a look at the reality of the economics of gasoline prices. Look at the chunks taken by taxes.

There are four main drivers behind the price of gasoline. First, there is the cost of the crude oil (a 68% factor). The second significant cost of gasoline is taxes-- federal, state, and local (a 15% factor) and third is distribution and marketing, which includes pipelines, transportation, delivery, and retail sales (a 10% factor). The smallest component during February 2011 was refining (a 7% factor). The distribution of the components changes based on many factors including the market price of crude, the environmental requirements that refineries must comply with at different times of the year, adverse weather affecting operations, and the tax structure of state and local governments.

The White House released a broad outline of President Obama’s proposal to cut corporate tax rates, which includes tax increases for oil and gas producers and the creation of new tax loopholes and subsidies for renewable sources like wind and solar. IER President Thomas Pyle issued the following statement:

“On the surface, it is promising to see the President finally recognizes that the current corporate tax rate in the United States leaves American businesses at a competitive disadvantage in a global market. Below the surface, however, this latest proposal is another scheme to tip energy markets to favor the administration’s allies in the renewable industries.

“Gasoline prices are at record seasonal highs, yet the administration continues to embargo America’s vast energy resources behind a job-killing regulatory gauntlet. Now, the President wants to further discourage domestic energy production by skewing the tax code to punish oil and gas while he favors wind and solar. In the end, companies like Solyndra won’t only be getting hundreds of millions of dollars in taxpayer-funded loans, they’ll be getting a discriminatory tax structure designed to boost their profits by punishing the administration’s bogeymen in the oil and gas industries.

“Tinkering with the tax code is not a solution to America’s energy needs. Creating tax loopholes and more subsidies for companies like Solyndra is not tax reform. Letting the free market determine how best to harvest our energy resources is the only way to ensure a fair, even playing field for American energy development.”

By picking winners and losers in energy policy, the price at the gas pump will continue to rise. Burdening the industry with additional taxation will, in fact, turn into the consumer's burden.

President Obama does not have an energy policy. President Obama has an ideological agenda.

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