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Cronyism at the Gas Pump

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Tags Corporate WelfareTaxes and SpendingPolitical Theory


Since 1993, the federal government has levied a gas tax of 18.4 cents per gallon. State governments also set and levy their own gas taxes. All considered, Americans pay an average of 54.21 cents per gallon of gas in taxes. That’s quite a shocking number, especially in comparison to what shop owners, the people who are actually providing this essential good, are making. That number is just an average, too. Some state taxes on gasoline are drastically higher. For instance, state gas taxes in Pennsylvania are an outrageous 51.4 cents per gallon, meaning that Pennsylvanians are paying nearly 70 cents a gallon to governments. Many can remember a time when that was nearly the entire price for fuel!

One can be forgiven for being unaware of how large these gas taxes have become, as they are applied rather sneakily into prices rather than added at the time of purchase like other sales taxes.

Governments make the same off each gallon of gasoline regardless of whether prices are high or low. Private-sector gas station owners aren’t so lucky.

In fact, as prices rise, gas station owners often make less. As noted in the NACS Retail Fuels report:

The pattern of retail profitability is the opposite of what most consumers think. Due to the volatility in the wholesale price of gasoline and the competitive structure of the market, fuel retailers typically see profitability decrease as prices rise, and increase when prices fall. On average, it costs a retailer about 12 to 16 cents to sell a gallon of gasoline. Using the five-year average markup of 18.9 cents, the typical retailer averages about 3 to 5 cents per gallon in profit. (Retailer costs to sell fuel include credit card fees, utilities, rent and amortization of equipment.)

Selling gas is a competitive business and profits can be hard to come by. Fortunately for some gasoline retailers, though, they’ve found a way to use the power of government to cover their costs and ensure better profits.

Years ago, the State of Tennessee created a fund designed to pay for gas spills from underground storage tanks. Historically, gas stations have paid yearly fees into the fund, but the vast majority of the money is coming straight out of the taxpayer’s pocket through the gas tax, to the tune of $18 million a year.

The creators of the fund argued that the cost of private insurance for leaks and spills would be prohibitive for many small gas retailers. So, government created its own fund for clean-ups and subsidized it with taxpayer dollars.

But, that wasn’t enough for the gas-retailer lobby.

A bill passed this year that allows a government board — the Underground Storage Tank and Solid Waste Disposal Control Board — to eliminate companies’ fees altogether, which would transfer, in its entirety, the cost of these gas tank spills from the business owners to the taxpayers. That’s a sweet deal for gas companies of course, but it’s a raw one for everybody else, whose wealth is being siphoned off every time they fill up their car.

It’s easy to see why an interest group would want to shift more of its costs directly to the taxpayer. But, the sudden legal change becomes even less mysterious when we note that since its creation in 1990, the board has given $10 million dollars to Pilot Flying J, which happens to be the company that has made Tennessee Governor Bill Haslam the wealthiest elected official in the country.

Moreover, when Haslam was elected governor, he reconstituted the board that oversees the spill fund so that 12 members of the 14 member board are now appointed by the governor himself. It should come as no surprise that Haslam has also been one of the loudest advocates for increasing the state’s gas tax in recent years.

Proponents of this program continue to argue that it is helpful to the economy because some smaller gas stations would — in the absence of the spill fund — be put out of business by the cost of liability for leaks and spills.

But, as is so often the case, this pro-subsidy argument falls into the trap articulated by Bastiat in the nineteenth century and later by Henry Hazlitt: the pro-subsidy position is only taking into account the visible effects of this policy, and neglecting the unseen effects. Some gas stations are surely being kept alive by the program, but every dollar that they receive is a dollar that the government has prevented from being spent elsewhere in the economy on more urgent needs that are determined by free people making free choices with their resources. The wealth lost by the redirection and redistribution of this wealth over the past 26 years can never be fully known, but it is surely significant if one considers how the private sector could have used these large sums of money. If legislators truly wanted to ensure the survival of small gas stations, they could have done much more good by attempting to lower the regulatory costs for these businesses, including the minimum wage. 

Nathan Keeble is a Mises University Graduate and helped found the Campaign to End Civil Asset Forfeiture in Tennessee.

Nathan Keeble is a Mises University Graduate and helped found the Campaign to End Civil Asset Forfeiture in Tennessee.

Note: The views expressed on Mises.org are not necessarily those of the Mises Institute.
Image source:
Steve Snodgrass www.flickr.com/photos/stevensnodgrass/
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