NTF Issue Paper.  Gastax3.doc.  8-08.





BACKGROUND.  The U.S. consumed an average of 21 million barrels of oil per day in 2004, 45% of this amount used as vehicle fuel.1  Americans use about 178 million gallons of gas per day.  Demand for gas will rise this summer, because many take vacations.  Americans normally rely on vehicle fuel not only to commute but also to operate and manage businesses.  Most of our consumable products transport to local points via 7 million trucks, many owned by families.2  A combination of fuel shortages, with supply growing at only 2% annually, and spiraling prices empty our pockets and damage our economy.  Business and industry hit with higher fuel prices pass along their costs to consumers.  Unfortunately, most consumers lack knowledge of fuel pricing and blame high prices solely on oil corporations, which naturally earn higher profits as the price of crude oil spirals.  These corporations earn only 8.2c profit on each gallon of gas sold the consumer, a lower margin than on many other consumer products.  Compare this figure to the 44.6c per gallon of gas Nebraskans pay at the pump in state and federal taxes.  Exxon Mobil, the largest oil company, produces only 3% of crude oil, too insignificant to influence world markets. 

GAS PUMP $$s.  When you pump gas into your vehicle, your payment distributes to several entities along the supply route.  These entities help set the pump price.  About 43 % of your cost goes to crude oil suppliers, like OPEC.  The amount of crude oil they produce determines the price of a barrel of oil, now over $120.  11 OPEC nations pump 40% of world oil production and horde 2/3rd of world reserves.3  Whenever OPEC wants to raise the price of crude, it simply reduces production. U.S. oil companies do not control the price of crude.  Gas prices jump from this factor but also because, when production curtails, oil companies tremble and raise prices under mere threat of future reductions. The potential for scarcity drives up prices.4  The U.S. imports oil from other countries, but OPEC tracks their oil production and cleverly lessens its own output to maintain its desired barrel price. Refining costs total about 13% of your gas price, or 9c per gallon profit for them.  Crude oil transports to refineries, then gas ships to distribution places and gas stations.  Distances from oil refineries affect cost.  The cost of transportation (which rises with fuel costs) and marketing of individual brands totals about 13% of cost.  Federal, state, and local taxes account for about 31% of your cost.  Fed excise taxes are 18.4c per gallon.  The feds also tax gasohol, ethanol, nonethanol alcohol, alcohol fuel, and diesel fuel. The NE tax on regular gas is 26c per gallon (see our issue paper on state gas taxes).  Taxes are the biggest factor in varying prices around the nation.5  High oil prices without any tax relief will reduce real disposable income for an average family of four by $1,324, decrease consumer spending by $79.6 billion, and reduce the number of job opportunities by almost 500,000. Higher prices and slower economic growth will reduce federal tax revenues by $12.4 billion over the next three fiscal years.6  Finally, service stations add a few cents to make their profit.  Large chain stores normally charge less or sell at a loss in order to attract customers to their stores. 

HIGH-PRICE FACTORS.  Pump prices spiral when the world crude oil market restricts, and inventories drop.  Our growing gas demand more frequently outpaces refinery capacity.  We must import gas from Bahaman refineries.  Refineries usually perform general maintenance in spring, which lowers output of gas. Inclement weather like hurricanes, which have damaged offshore drilling facilities, coastal refineries, and shipping ports, and wars raise the pump price.  If one tanker sinks or becomes crippled on the ocean, the market restricts.  Nebraska gas prices far exceed the national average, because in 1999 the Midwest fell subject to new bureaucratic reformulated gas rules enacted because of radical environmentalists.  The feds forced oil companies to alter additives and stop using MTBE. Nebraska uses a special gas blend produced using ethanol instead of MTBE, because of our surplus of corn, the main ingredient in ethanol. Few refineries outside the Midwest produce this kind of gas, which means a limited supply of it. Special blending raises per gallon costs about 30c. 




TAKE ACTION.  Blame high gas prices on liberal congressmen who hike our fuel taxes and burden private companies with too onerous regulations.  High prices result from their failure to act to open domestic resources to drilling.  We must produce more of our own gas and oil.  Red China now is helping Communist Cuba drill for oil adjacent to our coast, in places that our government bans U.S. oil companies from exploring.  Liberal Sen. Arlen Specter and his crowd sticking the oil companies with a windfall profits tax will only cause these companies to pass along their added costs to us.  Contact your national senators and representatives and your state senator today to begin pressing the above legislation.  Tell them you are disgusted at taking lumps at the pumps!  Email NTF or call (402) 551-0921 for contact information.


Research, analysis, and documentation for this worksheet done by members of Nebraska Taxpayers for Freedom.  This material copyrighted by NTF, with express prior permission granted for its use by Citizens for Local Control, Cherry County Taxpayers, Dawes County Taxpayers, and other groups in the Tax Freedom Network.   8-08.   C




1 U.S. Dept. of Energy.

2 Heritage Foundation Study, D. Mark Wilson, 2000.

3 Energy Information Administration.

4 Energy Security Analysis, Inc.

5 money.howstuffworks.com.

6 Heritage Foundation Study, D. Mark Wilson, 2000.