Tag Archives: oil companies

Making A Bad Situation Worse

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As of April of this year, California had the highest gasoline taxes in the nation [51 cents per gallon (article here)]. Now Governor Newsom is going to do something that will increase the pain at the pump for Californians.

On Sunday, Townhall reported:

Just when Californians thought they were getting a break on high gas prices, they shot up again, hitting $7 in some areas. 

Gov. Gavin Newsom (D-Calif) called for an emergency session of the state legislature to propose a tax that will rip off what he calls the “greed of oil companies.” 

“I’m calling for a Special Session to address the greed of oil companies. Gas prices are too high,” Newsom tweeted, adding “time to enact a windfall profits tax directly on oil companies that are ripping you off at the pump.” 

The oil companies are not ripping you off at the pump. The higher gasoline prices are caused by the Biden administration’s war on fossil fuel and by The Organization of the Petroleum Exporting Countries (OPEC) deciding to reduce production in order to keep prices high. The Biden administration has done what it could to limit lending to oil companies while also limiting their ability to drill for oil. It has also stopped pipelines that cheaply and safely move oil from one place to another. The rise in prices at the gas pump are simply a reflection of the economic principle of supply and demand. Governor Newsom either never studied economics or chooses to ignore what he learned.

Remember, corporations do not pay taxes–their customers do.

The article notes that the Governor was mocked on Twitter for wanted to raise the tax on oil companies. At least some people on Twitter understand the economics of the issue.

The article concludes:

Meanwhile, California Assembly GOP leader James Gallagher and Vince Fong, the Assembly Budget Committee vice chair argued for Newsom to not call for the special session. 

They said that lawmakers should suspend the state’s gas tax if the governor does take this action. 

Stay tuned.

Who Is Responsible For The Price Of Gas?

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On Friday, The Blaze posted an article about the high price of gasoline at at the pump. Recently, Democrats have accused oil companies of profiteering–making excessive profits on the backs of American consumers. Well, that charge does not hold water.

The Blaze reports:

Economists at the Federal Reserve of Dallas published analysis this week debunking a popular claim that Democrats make against oil companies.

…Next week, the House is even voting on legislation promoted by Democrats to combat the oil industry’s alleged exploitation of consumers.

The article lists the real cause of the problem:

Garrett Golding and Lutz Kilian, senior economic analysts at the Federal Reserve of Dallas, explained that profiteering and price gouging are not contributing to the staggering price of gas.

Two facts in particular disprove this myth. Golding and Kilian explained:

  • Gas station operators set prices: “Gas station operators set retail prices based on their expected acquisition cost for the next delivery of fuel from the local distributor, federal and state tax rates, and a markup that covers operating expenses, such as rent, delivery charges and credit card fees.”
  • Nearly every gas station is owned by a company that does not produce oil: “Since only 1 percent of service stations in the U.S. are owned by companies that also produce oil, U.S. oil producers are in no position to control retail gasoline prices.”

The article explains the rise and fall of gasoline prices:

The economists also addressed asymmetric nature of gas price changes.

[T]he asymmetry of the response of retail gasoline prices need not be evidence of price gouging. One potential explanation is that station operators are recapturing margins lost during the upswing, when gas stations were initially slow to increase pump prices. The reluctance to lower retail prices also likely reflects concerns that oil prices—and, hence, wholesale gasoline prices—may quickly rebound, eating into station profit margins.

Another possible reason for this asymmetry is consumers’ tendency to more intensively search for lower pump prices as gasoline prices rise than when they decline. This diminished search effort provides further pricing power to gas stations, causing prices to fall more slowly than they rose. This has prompted researchers to liken the response of gasoline prices to higher oil prices to a rocket—and the response to lower oil prices to a feather.

It is not noted in the article, but making America energy independent once again might be a big step in the right direction to bring gasoline prices down.