Gas Prices and Hot Air
President Obama continues to blame high gas prices on U.S. oil companies as he works to gain voter support for the 2012 election. He argues that these companies are responsible for boosting fuel costs, so the government should punish them by selectively revoking tax treatments afforded to all other U.S. companies. Unfortunately, his logic conflicts with how the energy market functions and would result in additional pain at the pump. What he’s trying to do is called scapegoating, using the tactic of his mentor Saul Alinsky: pick the target, freeze it, personalize it, and polarize it.
According to the U.S. Energy Information Administration, the price of regular gasoline is a composite of four costs. Six percent can be attributed to the refining process performed by U.S. oil and gas companies, and an additional six percent of the cost comes from transporting and getting the product to market. Twelve percent of the cost comes from state and federal gasoline taxes. The lion’s share of the cost, 76 percent, is the result of globally set crude oil prices, a factor over which U.S. firms have virtually no influence.
Crude oil is priced based on the global supply relative to global demand. If there is turmoil in a region that is producing a large percent of the global supply, like the situations in Iran and Syria, it threatens the global supply and prices go up. The U.S. can act to pressure this price down by producing more of our large domestic reserves, but this takes time.
Resources that were given the green light by President Bush are just coming online and production on private lands has been growing. As a result, domestic production has reversed its decline and growing. But this Administration has been slow to issue permits for exploration on federal lands and offshore and continues to keep much of the nation’s resources under lock and key through drilling bans. But increased production isn’t the only way to mitigate rising fuel prices. If we produced to our potential, OPEC would probably lower its price to maintain market share, and that would push down the price at the pump. And more domestic production would improve energy security.
The President can fight to reduce the cost of refining and distribution to take a small bite out of the price of gasoline. He could reduce the number of boutique gasolines mandated. He could make distribution more efficient by increasing and updating the pipeline infrastructure. But these projects are often delayed for years in bureaucratic review and, in the case of the Keystone XL pipeline, rejected completely. Yet, targeting our oil sector with punitive tax hikes, as the President is suggesting, would raise not lower prices.
Oil company ExxonMobil recently broke down their 2011 earnings and disbursements, finding that while they earned $9.6 billion in profit or 9 percent of sales, they spent $72 billion in the U.S. to make this money. Of that, $31 billion went to their 30,000 employees, their various service providers, and to contractors, creating countless domestic jobs. And that’s just one company. While profitable oil companies benefit the economy, the President’s tax increases will actually curb desired growth.
Government modeling done by LSU professor and economist Dr. Joseph Mason shows that the President’s tax increases would eliminate over 155,000 jobs in both the energy sector and all related fields, including not-so-obvious ones like finance and healthcare. The net loss in revenue and growth would reduce taxes paid to the government by $83.5 billion, meaning this $40 billion tax grab would equate to a net loss of $53.5 billion for government coffers.
Oil companies would no doubt welcome the opportunity to produce more U.S. reserves, to receive the same tax treatment as other producers, and to build more efficient infrastructure to reduce gas prices. Unfortunately, this Administration has worked against the industry on nearly all these measures. If President Obama wants to place blame high for high gas prices, he ought to look in the mirror.
William O’Keefe, chief executive officer of the George C. Marshall Institute, is president of Solutions Consulting Inc.