The map above from API shows gasoline taxes by state (combined local, state and federal), which range from a low of 26.4 cents per gallon in Alaska to a high of of 66.1 cents per gallon in California, averaging 48.1 cents per gallon across all states. How does that compare to oil company industry profits per gallon?According to this post on Exxon Mobil's Perspective Blog , "For every gallon of gasoline, diesel or finished products we manufactured and sold in the United States in the last three months of 2010, we earned a little more than 2 cents per gallon. That’s not a typo. Two cents."
Update: ExxonMobil is now reporting that for its retail gasoline operations in the U.S., it made an average profit of 7 cents per gallon during the first quarter of 2011.
A couple of points from introductory microeconomics. We teach our students that:
- Low profits per unit is a good thing, indicating a competitive market. In a competitive market the gains to consumers and produers are maximized. The less competitive the market, the lower the overall gains and the greater the share of gains that goes to producers relative to consumers.
- Negative externalities are social costs that should be internalized. One way to do this is with a corrective. If the the tax is set to be equal to the additional social cost generate by each unit of the activity, the tax reduces the level of activity to an efficient level.
Given these points, Exxon Mobil's comparison of taxes vs profit per unit is almost meaningless. There is economic reasoning and research to suggest that Exxon Mobil's profits are too high and gas taxes are too low.
Hat tip: Knowledge Problem
