Thursday, November 10, 2005

Government Shares Blame for High Gasoline Prices

Five executives of “Big Oil” were invited to Washington to testify before a joint committee trying to get to the bottom of their record 3rd Quarter profits in the wake of supply shortages resulting mainly from the recent hurricanes in the Gulf of Mexico.

Via (Fox News)

Asked to account for the record profits — said to be more than $32 billion in the third quarter among the five oil companies who appeared on Capitol Hill Wednesday — oil executives say it's a simple case of supply and demand.

"There are no quick fixes and there are no short-term solutions," said ExxonMobil Chairman Lee Raymond. Rather, he said, it is important to have a stable environment for an industry that is among the most volatile in the marketplace.

Raymond was joined by the executives of Chevron Corp., BP America, ConocoPhillips, and Shell Oil Co. in testimony before a joint meeting of the Senate Commerce, Science and Transportation Committee and the Senate Energy and Natural Resources Committee.

They offered their suggestions on how to increase supply — exploration for new fuels, additional refineries and research and development. But in any of those pursuits, government regulation won't help, they said.

I’ll be the first to say I hate high gas prices as much as anyone else does, but for some members of Congress to sit there acting all high and mighty while placing all of the blame on oil companies is, quite simply, asinine. In fact, I’ll go so far as to say the government bears a considerably greater responsibility for the problem than do the oil companies.

I’m not saying price gouging does not occur. In fact, it probably does, but on a limited scale. It certainly cannot account for a rise in prices as dramatic as what occurred in the wake of the recent hurricanes. Other factors come into play, namely taxes and government regulation.

The federal government adds 18.4 cents per gallon to each gallon of gas we buy. Then you add in state taxes, which average 20.8 cents per gallon for gasoline and 21.3 cents per gallon for diesel. The range for gasoline is from 7.5 cents per gallon in Georgia to 32.1 cents per gallon in Wisconsin, and for diesel its 7.5 cents in Georgia to 35.1 in Pennsylvania. In most states, there are also additional taxes levied by city and county governments that also increase the tax on each gallon of gasoline considerably.

This brings to mind the biblical parable in which Jesus told us to remove the log in our own eye before removing the speck in another’s eye. The government at all levels are responsible for adding from 25.9 to 53.5 cents per gallon to each gallon pumped before
adding in other imbedded taxes that vary depending upon where you buy gas.
And what is one solution offered to stop rising gas prices?

One windfall profits proposal in Congress that would place a 50 percent tax on profits received on oil sold above $40 per barrel was criticized both by oil executives and some lawmakers. Sen. Byron Dorgan, D-N.D., is the chief sponsor of that proposal.

That’s right! A 50% tax penalty on the oil companies that would simply go toward someone’s pet project or an additional government program. The consumer would pay the additional tax because oil companies cannot operate within an arbitrary price cap. When the penalty is levied, the oil company has to raise prices on the consumer to make up the difference. When the government messes around with the free market and tries to control prices, the consumer always pays the price. The principle of supply and demand will determine where the price should be and whether that price is too high.

When you add government and environmental regulations, area specific blends that force the prices even higher, refuse to allow new refineries to be built in the United States, and limit where the oil companies can drill for oil, it makes one wonder why the oil executives aren’t the ones questioning Congress about rising fuel prices.


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