California’s Sales Tax on Gasoline Makes Government Complicit With Oil Companies
Santa Monica, CA — A study released by the Foundation for Taxpayer and Consumer Rights California (FTCR) today found oil company profiteering and the government’s failure to respond to it are the cause of recent gasoline price spikes in California. Click here to read the report.
The study by petroleum industry analyst Tim Hamilton showed, for example, that from January 17th to April 18th 2005 gasoline prices jumped 65 cents per gallon and refiner profits rose by 61 cents per gallon. The extra four cents went to the state in increased sales tax collection. The study concluded that California’s percentage sales tax provides an economic incentive for government officials to promote high prices at the pump because they result in greater tax collection — an estimated $1 billion more in California during 2005 due to the price gouging. The consumer group recommends a “windfall profits rebate” be instituted.
FTCR sent President Bush a copy of the study today and called upon him, in a letter, to warn oil companies against profiteering in the wake of Hurricane Katrina and issue an executive order prohibiting profiteering if necessary. (The full letter can be read at the end of the press release.)
“Oil company profiteering, not increased production costs, is the cause of the price spikes at the gasoline pump and Californians deserve their money back,” said FTCR president Jamie Court, who served with Hamilton on the California Attorney General Gasoline Pricing Task Force. “Hurricane Katrina will only increase the probability of profiteering and should be a wakeup call to legislators.”
“The continued failure of public officials to compel refiners to create more refining capacity and increase inventories will result in gasoline prices rising to $4 per gallon relatively soon,” stated Hamilton. “The system is rigged for price spikes and the refiners know it.”
The study examined the causes of the doubling of the average price of gasoline from $1.36 per gallon on January 03, 2000 to $2.72 on August 15, 2005. Among the main findings are:
- Increases in the prices charged for oil by OPEC countries are not primarily responsible for the dramatic increase in gasoline prices in California. Much of California’s crude oil is harvested locally by major refiners who control their own fields. OPEC nations only supply approximately 20% of the oil delivered to refineries in California. Fields controlled by the oil companies in California or Alaska provide the majority (66%) with the remaining 14% coming from non-OPEC foreign locations
- California consumers will pay an estimated increase of $15.5 billion more at the pump in 2005 than in 2000 because of profiteering by oil companies and government’s failure to act.
- No public evidence exists of substantive increases from 2000 to 2005 to oil companies in the cost of a) producing crude oil; b) refining oil into gasoline or diesel; or c) transporting the refined products to market.
- The 2005 California gas prices spike — with pump prices increasing from $1.93 of January 17 to $2.72 by August 15th — was directly tied to the exportation of large quantities of CARB motor fuel in 2005. By exporting fuel out of the country, refiners and traders deliberately decreased available supplies during a period of peak demand.
- Inflated profits for California oil companies from their refining operations —
including an increase of 61¢ per gallon in profits from January 17 to April 18 — were a principal factor in the jump in gasoline prices.
- California, which also collects a gasoline excise tax, is one of only 9 states that maintains a sales tax on purchases at the pump. Gasoline price increases in California will increase collections of the 7.25% state/local sales tax during 2005 by an estimated 6¢ per gallon (40%) or approximately $1 billion — creating the largest gas tax increase in the history of the state.
- California’s percentage sales tax provides economic incentives for government
officials to promote high prices at the pump. The sales tax has created an implied
partnership between the oil industry and California government as both dramatically benefit from the rise at the pump. The risk that elected officials constantly searching for additional tax revenue will become “hooked” on high pump prices is real.
- While gasoline sales tax collection increased by over 150% after adjustment for
inflation since its enactment in 1972, the minimum wage level, also set by the legislature, has fallen nearly 12.5% during the same period.
FTCR is a nonpartisan, nonprofit consumer group. FTCR and Mr. Hamilton collaborated on numerous investigations into the causes and effects of price spikes including the Midwest run-up of 2000 and price spikes or refinery closures in California (2002, 2003, 2004).
Click here for more information on these studies.
The text of the letter to President Bush follows:
September 1, 2005
President George W. Bush
The White House
1600 Pennsylvania Avenue NW
Washington, DC 20500
Dear President Bush,
At the outbreak of the Persian Gulf war, your father called upon oil companies to freeze prices and show restraint. They did so for about two weeks. Yet your response to the gasoline price crisis posed by Hurricane Katrina failed to address oil company profiteering or gasoline price increases.
Recent studies by the Foundation for Taxpayer and Consumer Rights show oil company profiteering is behind recent gasoline price spikes. For example, from January 17th to April 18th 2005 California gasoline prices jumped 65 cents per gallon and refiner profits rose by 61 cents per gallon. Hurricane Katrina will only increase the probability of oil company profiteering.
We ask you to call upon the nation’s oil companies to freeze the price of gasoline and warn the companies that profiteering will not be tolerated. If an executive order is necessary, it should be issued.
Hurricane Katrina must be a wakeup call to Washington, DC that oil companies maintain insufficient refinery capacity and inventories to serve the American public. The US government must take on the task of regulating refinery capacity and inventories in this nation.
Jamie Court, FTCR President
Doug Heller, FTCR Executive Director
Tim Hamilton, Petroleum Consultant