Republic Rules - The U.S.A. is a great representative republic.

If you haven’t already read it, check out this post since I’m going to take the same route but, instead of cell phones, this time I’ll use gasoline:

Hidden Taxes - Cell Phones

OK… let’s start with the same basic premise as my original post, where the base income tax rate is 15%. Then, I’m going to use my hard-earned dollars to buy some gasoline. Now, the price of gas is a moving target but I’ll use the April 2008 figures from the California Energy Commission:

Of the $3.69 price per gallon of gasoline:

• $0.64 goes toward federal, state, and local taxes and fees
• $2.60 is the cost of the crude oil
• $0.44 is for refinery, distribution, and marketing costs and profit

OK, for you math freaks out there, ignore the penny that we’re off… the California numbers probably have a rounding error. For simplicity, let’s convert these to percentages:

For every dollar spent on gasoline in California:

• 17.3% goes to taxes, etc.
• 82.7% goes to cost of goods, production, marketing, and profit

Now, let’s break it down one more level. If we assume, say, Exxon is the only company involved in our example… it is the company that takes in the 82.4% of every dollar in our sample gas station to pay the cost of crude, all the production, distribution, and sales costs, and gets the profit. According to their SEC info, in 2007 they paid about 7.4% in taxes (remember- they pass these taxes on to their customers, just like every business does!), and made 10% in net profit.

So, for every dollar spent on gasoline in California at an Exxon station:

• 17.3% goes to taxes, etc. applied at the pump
• 68.1% goes to costs for crude, distribution, and marketing *
• 6.1% goes to corporate taxes paid by Exxon (with money collected from customers!)
• 8.2% goes to profit

As you can see, 23.4% of every gas dollar went to taxes and 8.2% went to the company that did all the work. We won’t even carry this out to the next level: Exxon paid some money to other companies for THEIR services and those companies, in turn, paid some taxes… so this example, once again, is a conservative estimate. It is just meant to demonstrate the point that we pay far more in taxes than meets the eye.

*The costs above include some amount that oil companies pay to comply with government regulation. We won’t even factor that in since it would be far more difficult to determine. I will assert that some portion of those compliance dollars are probably poorly spent and represent a drag on our economy. Don’t misunderstand: some regulation in this area is probably for the better, but some of what has been forced on the oil industry is undoubtedly due to errant political forces.

Also, while the raw dollars might be huge, I don’t begrudge any company a very reasonable 10% return on sales. They take a big risk and could just as easily lose money in some years, which has actually been the case in the cyclical “boom or bust” history of the oil industry. I think people get distracted (due to jealousy?) and forget about all the jobs that are created and the greater good done for our overall economy.

In this case, add 23% in taxes related to gas and the 15% base income rate (which is also probably low) and you get a total effective tax rate on the dollars we spend on gas of about 38%! I’m going to guess that, if we REALLY analyzed it, we would find that approaching HALF of every dollar in this example actually goes toward some government tax or fee.

Think about it! We’re not talking about the mega-rich paying a 50% tax rate… we’re talking about you and me! On a daily basis!!

Government taxes and fees are (1) too high and (2) too difficult to determine, which I believe is purposely that way… “they” (politicians and bureaucrats) prefer to keep us in the dark. We, the people, need to be able to easily SEE the actual amount of total taxes they are paying so they can arrive at better decisions, both when making a purchase and casting a vote.

Taxes are too high and need to be reduced. The only way to reduce taxes is to reduce government spending. Government has continued to expand its scope of “services” beyond those authorized by the Constitution… and it is these services that need to be eliminated to get spending under control (not to mention eliminating wasteful or ineffective spending in legitimate areas).