Who's Pumping Up Gas Prices?

It's become almost a competition in our family to watch the gas prices as we drive down US 50, looking for the day's highest price. The fun is over when the gas gauge drops below a quarter tank and it's time to fill up again. The novelty of spending $40 to refuel my wife's van wore off after the first time. Now it's just painful.

Whenever this subject comes up in conversation, there always seem to be two culprits mentioned: the oil companies and OPEC. Certainly they both profit from crude oil at over $41 per barrel. But the truth isn't quite as simple as it seems.

For one thing, federal and state taxes on a gallon of gas add up to about 47 cents. At today's prices that's about a 33% tax rate. The lower the price, the higher the tax percentage. For example, when gas was $1.50, that 47 cents represented a tax rate of over 45%. If the sales tax on our other purchases were to approach these rates, heads would roll among the politicians. Since these taxes are hidden, we all just pay while complaining about OPEC or the oil companies.

An even more insidious form of taxation that affects gas prices is inflation. Many call this a tax because it is a method governments use to extract money from people. Federal deficit spending increases the supply of money and/or credit (the very definition of inflation), thus causing the value of the dollar to fall and prices to rise. Sometimes, as in recent years, the rise in prices is delayed for a while, and the government falsely reports that the rate of inflation is low. Eventually inflation must bring about higher prices.

In the case of petroleum, prices are catching up fast. Over the last two years, the value of the dollar versus the Euro has declined drastically (one measure of dollar inflation). During the same time period, the price of crude oil has increased only four percent in terms of Euros, but over 50% in terms of dollars. If not for excessive dollar inflation, the price we pay for oil would be more like $28 per barrel rather than the present $40.

There are, of course, other things affecting the price of crude. The economic recovery has stimulated more fuel usage, as does the explosive growth of the Red Chinese economy (after all, they need fuel to run all of the factories we are sending over there). As everyone should know, increasing demand drives up prices.

The most bizarre factor in all of this is in the production of refined gasoline. Regardless of the price of crude oil, US refinery capacity is simply inadequate to meet gasoline demand. No new refineries have been built in our country in over twenty years. This is partly due to extreme environmental regulation of the refinery industry, and government encouragement of refined gasoline imports instead of domestic production. Even if crude oil were free, without building new production capacity, rising demand for gas would bring up the price.

Looking back over the factors pushing gas prices up, we see that almost all involve government policy. Taxes, inflation spawned by deficit spending, and policies that discourage investment in refineries are all under the control of government. The solutions to those shocking pump prices lie with reversing or moderating government policies. We should resist any increase in gas taxes at the state or federal level. The total tax on each gallon should be posted prominently so customers can fully understand what they are paying for.

Congress must make balancing the budget and paying off the national debt one of our highest priorities. The deficits that Congress currently projects will cause disastrous price increases in all areas, not just fuel prices. The only remedy for this is for federal spending to be brought under control. Something is seriously wrong when refinery capacity isn't increasing in the face of rising demand. Congress should investigate what government actions are discouraging oil companies from building refineries in our country, then undo those actions.

Uncle Sam is pumping up our gas prices by profligate spending and meddling in the economy. Only reversing big government policies will prevent further increases.