April 2006

End the Sales Tax on Gas

ArchPundit April 28, 2006 2 Comments

LOL—it took me a bit to get what Topinka was trying to do with this. Illinois’ gas tax per gallon is 19 cents, but it also charges 5% sales tax. If one were to deliver true cost relieve the way to reduce the tax burden is on the 19 cents not on the 5% Judy is suggesting doing away with over $2.50/gallon.

The impact of her current proposal at $3 gallon would be to reduce each gallon of gas by 2.5 cents. On 12 gallons of gas, that would save 30 cents a tank.

This idea is about as useful of opening up ANWR, which despite a Hastert’s whining as of late, wouldn’t actually affect world oil supply by much (if approved in 1995, ANWR would currently be producing between 0% and .5% of daily world oil production on its way to a whopping less than 1% as demand is expected to increase). If approved now, even when it reaches full capacity, ANWR would produce less than 1% of the world’s daily oil consumption and given the oil market is a global market, would do nothing to reduce US reliance on foreign oil as the Bush Administration’s own figures put maximum daily output at 876,000 barrels a day .

At such a rate, it wouldn’t even account for the increase in billion of barrels per day required by the US between now and when ANWR would open in about 12 years. Worse, it would be half of what would be required by the world market for one year of projected annual average increase in consumption between 2002 and 2025. ANWR is a diversion from the reality that gas prices are a function of supply and demand and demand is way up. The way to insulate yourself from the effects of demand on pricing isn’t to produce more when it’s virtually impossible to do so in a meaningful way, it’s to conserve and switch to other energy sources.

I imagine the next canard will be that the big bad environmentalists won’t allow refineries to open. The reality is that refineries have been closing and few new ones being built for far more basic reasons:

It is true that refineries must comply with environmental regulations that have been strengthened in recent decades. Republicans frequently complain that the United States has not built a new refinery from the ground up in over 30 years. This ignores the inconvenient fact that we have certainly added refining capacity. And it is refining capacity that matters, not the number of refineries.

If we lack sufficient capacity now, the problem has its roots not in excess environmental regulation, but in the decision to deregulate energy markets in the late 1970s. Before then, the U.S. government regulated the distribution of oil and gasoline products in a command-and-control regulatory scheme that resulted in the development of significant excess refining capacity. In 1981, when this system ended, the United States had 324 refineries with a capacity of about 18.5 million barrels a day, but only 68 percent of that capacity was used. The rest remained idle. Obviously, no business can remain viable with those ratios. No grocery store would leave one third of its shelves empty, no manufacturing company would leave its plants idle for four months a year — and no one would expect them to.

Between 1981 and 1994, about 145 U.S. refineries closed. In the same period, overall U.S. refining capacity fell to 15 million barrels per day, pushing utilization rates to a more sustainable 92 percent.

Since then, refining capacity has grown at a slightly greater rate than demand. Between 1994 and 2002, capacity grew 11.6 percent while demand for finished products grew by 11.5 percent. This trajectory enabled refineries to operate profitably in a deregulated marketplace. Only over the past two years has refining capacity fallen behind the growth in demand for finished products.

Looking at EIA’s data, the number of refineries has fallen from 324 in 1981 to 149 in 2004. The capacity in BBL/DAY has falled from that year, but in surriounding years (after the excess capacity was cut, it has been stable, but utilization has gone from 68% to 92%. IOW, it isn’t those environmental wackos keeping us from having more refineries, it is market forces that promoted efficiency and reducing excess capacity. If one looks at historical data, current products supplied isn’t an unusual amount given historical trends so there is no reason to think that refining capacity is the cause of the spike in gas prices. The trend is upwards, but certainly no spikes.

So while everyone is looking for someone to blame, stop with the whining about those of us who think that we can have a clean environment and a good economy and look to the Asians who are increasing demand for crude oil dramatically.