The legislation would give federal authorities the power during presidentially declared energy emergencies to investigate and prosecute anyone selling fuel at a price that is "unconscionably excessive" or "indicates the seller is taking unfair advantage unusual market conditions."
President Bush has already threatened to veto the legislation so this was passed for purely cosmetic reasons. Primarily so politicians can go home for the 4th of July and claim they tried to do something about gas prices. The home folks are ticked off and want the government to "do something" about gas prices:
"I was at a funeral Saturday, and when the monsignor greeted me, he said, 'My God, Bart, you have to do something about these gas prices!' " said Rep. Bart Stupak (D-Mich.), chief sponsor of the anti-gouging bill.
Rep. Sheila Jackson-Lee (D-Texas) told her colleagues: "I can't go home, and I imagine none of you can, without saying we tried to do something."
Well, I've got a suggestion; how about lowering the federal, state and local gasoline taxes? Passing vaguely defined "anti gouging" legislation, even if Bush would sign it, will do absolutely nothing about gas prices. Cutting taxes on the other hand would have an immediate and quantifiable impact. Here's what we pay in taxes for a gallon of gasoline in Miami Dade County:
First comes the Federal Government; they get: 18.4 cents per gallon. Next in line is the great State of Florida who tacks on another 17.5 cents per gallon. Finally, how could our local county commissioners miss out on the bonanza? They get 16 cents per gallon. That's a grand total of 51.9 cents per gallon. What do the refiners make? Well here's some representative companies' profit margins:
Valero (VLO) did $40 billion in revenue last year and had an operating profit margin of 9.4%. Their net margin was just 6.4%.
Sunoco (SUN)generated $9.3 billion in revenue and somehow only managed to post operating margins of just 4.4%.
Holly (HOC)is a small fry at $3.8 billion in revenue but produced the best margins of the pure refiners at 10%. Their net margin was 6.9%.
Let's not forget about the oil companies. That gasoline was produced from a barrel of oil so they get a piece of the pie as well:
Chevron/Texaco (CVX)had revenue of a whopping $172 billion and profit margins of roughly 14%.
Exxon/Mobil (XOM) is the giant with $464 billion in revenue. They also claim the prize for largest profit margin for our sample with Operating Margins of 18%. Their net (after tax) margin is only 12% though.
Yes, these companies make a lot of money. 18% of $464 billion is a lot of money any way you slice it. But are they ripping people off? Are they engaged in gouging? Could you prove with the law that just passed? I doubt it. There is a reason that Exxon/Mobil had $464 billion in revenue last year. WE BUY A LOT OF GAS.
The oil business is a capital intensive business as well. Exxon spent $15.5 billion in capital expenditures out of an after tax income of $39.5 billion. That's a reinvestment rate of almost 40% of earnings. They paid a lot of taxes too. They paid an effective tax rate of 41% of earnings in 2006. And that tax rate is not just some screwy one year thing. Their tax rate in 2005 was 39%. And 38.5% in 2004.
So, in getting back to our example, we now know how much government gets from a gallon of gasoline. How much does the oil company get? Well, let's use Exxon as the example since they have the fattest profit margin and also have refining operations. At 12% of the average retail price of unleaded, regular gas of about $3.23, that's about 38.8 cents per gallon. Of course, that's a little high because the gas station owner/operator probably gets to make something out of that retail price, but for the sake of argument, let's say Exxon gets the entire 38.8 cents. That's still less than the government makes off the same gallon of gas.
So, to all you politicians out there: the reason we are asking you to do something about gas prices is because you have the power to make a difference. Because gouging is already a federal offense. And a state offense and a local offense. It's offensive to me as a citizen when you pass meaningless legislation when you have the power to actually do something. Cut gas taxes, you morons.
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