I saw an interesting graphic in the newspaper the other day. It showed how the price of gas was broken down. Most of the cost was constituted by the crude oil itself, and the rest of the cost was split up between expenses like refining, distribution, marketing, and taxes. But, since I really didn’t know what the historical percentages were on the price of gasoline, it lead me to wonder, “Are the gas prices going up because of taxes?”
Where I currently live, the average price of a gallon of gas is about $3.25. Utilizing the graphic on the right, I would estimate that the crude oil actually costs $2.31 per gallon (71% of $3.25), and the rest of the expense is allocated as follows:
- Refining: $0.16
- Distribution and Marketing: $0.33
- Taxes: $0.45
So these are the numbers for 2011, but what about the past years? What were the typical rates? According to the U.S. Energy Information Administration, taxes were actually higher during the Bush years (2000-2008) than they are now. The federal tax on gasoline used to be 23%! So, the tax rate has actually dropped by 9% within the last couple years. Unfortunately, with the crude oil prices on the rise, we have not really seen a break at the pump.
With the new innovation in electric cars, do you expect that the goverment will begin to tax the electricity that we use to charge our cars? If they do not, they will most likely need to increase the tax percent on gasoline in the near future.
My name is Derek, and I have my Bachelors Degree in Finance from Grand Valley State University. After graduation, I was not able to find a job that fully utilized my degree, but I still had a passion for Finance! So, I decided to focus my passion in the stock market. I studied Cash Flows, Balance Sheets, and Income Statements, put some money into the market and saw a good return on my investment. As satisfying as this was, I still felt that something was missing. I have a passion for Finance, but I also have a passion for people. If you have a willingness to learn, I will continue to teach.