Daily Wisdom

May 01, 2006

Gas Profits?

May 1, 2006 -- XYBA has an interesting article at his blog "Once More Into The Breach". What I gleaned from the article includes the following...

  • Oil companies make an average profit of 10 cents on the dollar
  • Federal taxes are approximately 18.4 cents per gallon
  • State taxes vary from 7.5 to 45.7 cents per gallon (in NY)
  • State taxes average around 22 cents per gallon nationwide

  • So let's think about this a minute. The national average of corporate profits was 11.6% of income (or 11.6 cents on the dollar) in the 4th Quarter of 2005 according to the U.S. Commerce Department. Therefore, the oil companies are right in line with the national average... maybe a little less.

    The national average price of gasoline is about $3.00 per gallon. Federal and State taxes account for 40 cents per gallon on average. Of the remaining $2.60 per gallon, the oil companies make approximately 10% or 26 cents per gallon.

    The Federal government then puts a corporate tax on this 26 cents of profit. How much corporate taxes do the oil companies pay? That's unclear, but I've seen various figures on the web that range anywhere from 9.8% up to 15%. (The standard corporate tax rate is 35%, but oil companies get various tax breaks). Let's use 12% as an average. That means that the oil companies get less than 23 cents per gallon after taxes.

    So do the math...

    Feds = 21.4 cents per gallon
    State = 22.0 cents per gallon
    Oil = 22.8 cents per gallon

    What I want to know is, how much work did the Feds and the States have to do to earn their share of the pie?


    At 5/02/2006 4:38 PM , Blogger camojack said...

    "...how much work did the Feds and the States have to do to earn their share of the pie?"

    Precisely 0%...

    At 5/03/2006 11:03 PM , Anonymous Amy Proctor said...

    This whole gas "crisis" is a scam. Oil companies are in it for profit but are not milking anyone. When you factor in the extra expense for meeting EPA standards, there you go.

    At 5/04/2006 8:32 PM , Blogger Hawkeye® said...

    Correctomundo! You get today's top prize... a Hawkeye personally autographed oven mitt! Delivery time approximately 34 to 56 weeks (expect delays). Shipping and handling charges of $54.99 must be paid C.O.D.

    (Don't forget to read the fine print.)

    At 5/04/2006 8:44 PM , Blogger Hawkeye® said...

    Contrary to what many people think, gas prices are not actually set by the oil companies. The cost of gas is market-driven. Traders at the NYMEX and COMEX trade gasoline futures and bid the price up or down depending on a whole range of variables like... what's going on in Iran, Venezuela, Bolivia, etc.

    Then, the oil companies sell their gasoline at market-established prices into various communities at the prevailing rates. Then, local retailers can adjust the price upward from there depending on what their competitors are doing across the street. If they want more business, they can keep margins low. If they want more profit or if they don't have much competition, they can raise prices to try and get whatever the market will bear.

    It's a very "supply and demand" kinda thing. (But you knew that.)


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