The Hidden Cost Behind High Gas Prices
Americans complain about high gas prices, but most never see the breakdown of what they’re actually paying for. Oil prices matter, but federal and state fuel taxes quietly add billions in permanent costs to consumers.
People tend to miss the root cause of issues they complain about. Maybe it’s lack of critical thinking or just human nature preventing a deeper dive.
Most People Misunderstand Gas Prices
Either way, we often scratch the surface and never see the real culprit. Short, quick answers rarely show the depth of the problem. Politicians and the media like it however. It’s nice to have a boogey-man to blame and vilify.
For example, since the beginning of the Iran conflict, gas prices have spiked. Naturally, everyone is affected immediately and complains about the new budget stressor. Oil prices were on a stable, even downward trajectory prior to the launch of the conflict in February.
Of course, finger pointing and criticisms have begun in earnest. Critics blame the administration for starting a war in the Middle East, while others point to the oil companies for taking advantage of the situation. Both arguments have some validity since supplies seem to be more than adequate.
Are Oil Profits to Blame?
“Big Oil’ is an easy punching bag because of the profits earned. But in reality, the refineries will earn only 1% to 5% over a ten year cycle with the boom and bust years averaged together. Wall Street traders usually don’t get very excited about less than 5%.
The oil companies will earn 6% to 10% over the same period. That’s higher margins, but not the obscene, crazy money that most people imagine.
Don’t misunderstand, I won’t be sending in a donation because I’m worried about them. The point is with the capital required in the industry, it isn’t the dizzying profits with expenses factored in.
But it’s discussed when there is a sudden price spike, but few talk about the permanent price spike.
Let me explain.
Federal And State Gas Taxes
Since 1997, there has been a federal excise tax on each gallon of fuel burned in the nation. Each gallon of fuel brings the Federal Government 18.4 cents. Every gallon purchased in every state.
But that’s not all.
Each state levies its own excise tax as well. It varies from state to state. California has the highest gas tax at 70.9 cents per gallon. Michigan follows at 68.6.
Congrats to Alaska. They only levy an 8.9 cent tax. They’re the lowest in the country.
When you combine both federal and state tax, Californians pay nearly .90 tax on every gallon.
By the way, if you’re curious, America burned 137 billion gallons of fuel in 2024. My calculator doesn't have enough space to arrive at a dollar amount. Suffice it to say, it is a lot of money.
The US EnvironmentalProtection Agency bears some of the blame as well. The regulations mandating ‘summer blends’ of fuel increase the cost up to .15 per gallon.
One has to love politicians. While they demonize the ones they blame for the higher prices, they seldom offer to eliminate (or pause) the gas tax which would give some relief.
This post isn’t meant to whine about taxes. But just like in a personal budget, it’s important to know where your money goes. What does it cost and what do you get for it? Taxpayers pay all the bills of this nation. The government has money because we worked for it and gave it to them. It is justified to ask questions and expect answers.
It’s wise to look behind the curtain of conventional answers to learn what’s really happening, to see who is actually pulling the levers.
We may be a long way from 1776, but the original premise states the government was instituted to create a civil society, mint currency for stable trade, and serve the people who funded their existence.
Taxed at Every Step
Over time, the roles have slowly reversed.
Instead of serving the citizens, many in the bureaucracy see us as millions of ATMs here to fund pet projects or their favorite dumb ideas. There’s a perspective problem.
We pay our fuel tax to commute to earn an income (which is taxed) to buy groceries (taxed) and maintain our home (also taxed). Before long, one can feel like a wrung out dishcloth with no more to give.
Many bills are electronic today which may prevent us from seeing the full breakdown the paper statements would show. On a power, cable or cell phone bill, there is a whole section of charges, fees, surcharges and add ons stemming from Federal, state and local authorities with each keeping a little for themselves. There are line items I have no idea the purpose of. Most people go straight to the bottom for how much to pay, and overlook the recurring charges.
In the 1700s, the colonists started the revolution against Britain for a 2% tax levied on tea. Two Percent!
It wasn’t because they were cheapskates and didn’t want the higher cost of tea. It was a principle. The money earned belonged to them and the King had no claim to it.
Times have changed and most would barely notice a 2% tax today.
The Wisdom of Watchfulness
This isn’t meant to stir up anger or raise your blood pressure, I promise. But here at The Cultural Skeptic, we believe that money is one of the components to an awesome life. It’s vital to pay attention and know how much goes to whom and how often it goes there.
This lack of attention is why many are shocked on April 15th and wonder where all the money went when filing their taxes.
This is part of the answer. It was taken before you ever had it.
This also opens the door to a more responsible government. When the citizenry pays attention to the affairs of state, they are playing their role in the nation and the government remains a servant and won’t grow into a monster drunk on power and our money.
After all, the money you worked for, actually belongs to you.
I know. It’s a weird concept.
What do you think? Who is to blame for higher gas prices? Leave a comment and join the conversation at The Cultural Skeptic.
