While the average price of gas in America hovers around $3.50 per gallon for regular unleaded, it costs more than $50 to fill a typical car’s 15-gallon tank.
But why does gas cost so much?
You may blame high gas prices on rich oil company executives or greedy gas station owners. But the truth is, governments rake in a larger profit than anyone at the pump — and with gas taxes on the rise in many parts of the country, there’s no relief in sight.
The price of a gallon of gas is based on the combined cost of four different expenses: the price of crude oil, the cost of refining/manufacturing gas, distribution and marketing expenses, and the amount of taxes levied on gasoline.
Oil costs comprise about 76 percent of the cost of gasoline, according to U.S. Energy Information Administration (EIA). That means $2.66 of a $3.50 gallon of gasoline is set before the oil is even refined and turned into gas.
Global markets, reacting to supply and demand, determine the cost of crude oil. Just like any commodity, from gold to corn, a shortage in supply or an increase in demand leads to a rise in prices.
Refining oil to manufacture gas is the next step in the process — and the next expense for drivers. During the refining process, gasoline is extracted from crude oil, and additives, including lubricants and detergents to reduce engine deposits, are added. As of January 2012, the EIA found that the refining process was responsible for six percent of the cost of gas.
Distribution and marketing — the part of the process most apparent to consumers — constitutes another six percent of gas prices. That portion of the cost includes the shipping and transportation of the gasoline, a markup to cover retailers’ expenses, and any advertising done to appeal to customers.
The remaining 12 percent — or almost 50 cents per gallon — goes directly to federal, state and even local governments in an array of sales and excise taxes.
The federal gas tax is 18.4 cents on every gallon of gasoline sold in America. State gas tax rates vary from a low of 8 cents per gallon in Alaska to a jarring 49 cents per gallon in New York. Other states where it’s steep to fill up include California and Connecticut — each with 48.6 cent per gallon state gas taxes — and Hawaii at 47.1 cents per gallon.
Some local governments have gotten in on the gas tax act, too.
California’s local sales and excise taxes on gasoline average 3.1 percent, according to the Los Angeles Times. That works out to about 12 cents in local taxes for each gallon of gas, based on the state’s $3.80 a gallon average.
Skokie, a suburb north of Chicago, levies a three cent per gallon gas tax. You’ll pay an extra nickel per gallon at gas stations in Eugene, Oregon. And the next time you’re in Las Vegas, don’t spend all your money at the casinos. You’ll need to have plenty of cash left over to cover Clark County’s budget-busting 10 cent local tax on a gallon of gas.
Florida Today reports that Brevard County — the Florida county home to the Kennedy Space Center — expects to siphon more than $15 million from motorists this year.
Believe it or not, government makes far more from gas sales than all of the oil companies put together.
ExxonMobil for example, made only seven cents per gallon of gasoline in 2011. That’s just a drop in the bucket compared to the nearly 50 cents per gallon that federal, state and local governments rake in one an average gallon of gas pumped in the United States.
Gas taxes are particularly unfair because they hit the poorest people the hardest. Most people have to drive, whether to work, to the grocery store, to pick up kids from school or any of the dozens of other reasons we pull out of the driveway each day.
These responsibilities don’t change whether you make $25,000 or $250,000 each year. The only difference is for someone struggling to make ends meet, paying 50 cents per gallon in taxes, may be the difference between driving to work and putting dinner on the table.
The next time you begin to blame oil companies, speculators or service stations for high gas prices, remember, no one get richer off of gasoline than government.
[Drew Johnson is a senior fellow at the Taxpayers Protection Alliance (TPA), a nonpartisan, nonprofit educational organization dedicated to a smaller, more responsible government. Visit TPA online at www.protectingtaxpayers.org.]
