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Hidden Taxes Boost Gas Prices

The summer travel season is upon us, and as you travel for vacations, you will no doubt notice the price of gasoline. Especially when traveling between states, you will probably find yourself commenting about how gas prices vary.

That brings us to our historic anniversary for the upcoming week. On June 6, 1932, the first federal gas tax was levied, buried in the Revenue Act of 1932. It was “only” 1 percent–one cent per gallon–and it was supposed to be temporary. Right! When have we ever seen a tax that was ever really temporary? They all seem to grow rather than diminish over time.

Oh, individual states had levied their own gas taxes much earlier. The first state to do so was Oregon in February 1919. (I wouldn’t have thought that Oregon even had enough cars on the roads that early in automotive history to make it worthwhile to tax gasoline.) That tax was 5 cents a gallon. Over the next ten years, however, the other 47 states and the District of Columbia followed Oregon’s lead and enacted their own gas taxes. By 1939, those taxes averaged 3.8 cents a gallon.

Today, state gas taxes are much higher, but they still vary dramatically. The lowest are found in Alaska (12.25 cents), New Jersey (14.5 cents), and South Carolina (16.75 cents). (South Carolina just passed a big roads bill without raising the gas tax, but they will put the state in debt through a bond sale.) The highest gasoline taxes are in Pennsylvania (50.4 cents), Washington (44.5 cents), New York (42.64 cents), and Hawaii (42.35 cents).

As if those taxes were not enough of a burden on consumers, the federal government had to get its hands into our pockets, too. The feds began grabbing their 1 percent in 1933. The tax stayed at that low rate until 1941, when they raised it “only” a half a percentage point. They didn’t raise it again until 1952, when they again raised it half a percentage point to 2 cents a gallon.

By that time, however, the congressmen thought that they had discovered the goose that laid the golden eggs. They began raising the gas tax more often and in larger bites. In 1957, they raised it a full percentage point to 3 cents a gallon. But they raised it another cent per gallon in 1959. Today, the feds are squeezing us at the pump for 18.4 cents a gallon. Add to that the states’ taxes, and you have a sizeable amount of money going to the governments. Yet, they are never satisfied, as the governments are always looking with greedy eyes at the gas tax as a convenient revenue source.

And some people complain that the oil companies are greedy? I think that we should be applying the accusation more to government. So much for a temporary tax!

But that’s just the tip of the proverbial iceberg. Those gas taxes hit us repeatedly in every economic transaction we make. No matter what the product or service we purchase, the sellers must pass along to us their costs of transporting their products or getting the services to us. Trucks, trains, ships, or planes must move the products from one place to another. The raw materials providers for those products must move resources to manufacturing facilities, and the manufacturers must move the products to the warehouses and wholesalers and retailers.

Every time there’s a gas tax hike, there must be several proportional increases in the prices of those goods and services at each step of the way–from accessing the raw materials to manufacturing the goods to getting them to us, the consumers. So the consumer pays many times over, not just the initial tax.

Why is it so hard for people to realize this simple economic truth? Because gas taxes are hidden. When you pass a gas station and look at the posted prices, they include the taxes in the price. Subtract all of those taxes, and you’ll see the real price of the product; all the rest is the burden that government has added to your transaction.

The next time Congress or your state legislature begins talk of increasing the gas tax “only” a fraction of a percentage point, get out your calculator and start adding up all of the accumulated price increases that will result, and then you’ll see how much that “little” increase will cost you.

But the bureaucrats and politicians know that most people don’t go to that trouble. Most people just see the total price at the pump–the taxes are conveniently hidden from view–and they typically blame the “greedy” oil companies when they see the price increase. At least the gas companies adjust (sometimes even lowering) their prices for seasonal changes in gasoline blends and driving demands. When was the last time you remember a legislative body lowering your gas taxes?

The pols have gotten away with this sleight of hand for nearly a hundred years now, and until consumers vote wake up and tell the pols, “No more!” they’ll keep right on doing it to us.

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