ProgressOhio

It was pouring rain as a mother of three in an old Ford mini-van pulled up to the pump next to me. The alarm in her eyes was evident. “It’s ridiculous,” I said, thinking what everyone at a gas station silently thinks these days.

“It used to cost me $125 a month for gas,” she said. “Last month, it was $275. Now it’s going to get worse.” Just then the numbers on my pump came to an abrupt stop at $50.13 as I nodded sympathy to her.

That’s right $50.13 for 12.565 gallons of 87 octane gas at $3.99 cents a gallon on a four-door sedan that according to the digital reading on my car gets 26.7 miles to the gallon (and yes I’m one of those who waits until the gas warning light turns on to fill-up.)

High gas prices are panicking paycheck-to-paycheck families and causing job losses in Ohio. So, what goes into a $50.13 gas receipt – how much for crude oil, how much for Big Oil, how much in taxes? And even more important, what havoc is it really creating in Ohio?

According to Congress’ Democratic Policy Committee, an estimated 150,000 Americans lose their job every time the price of a barrel of oil rises 10%. A barrel of crude oil rose 73% between February 2007 and February 2008, costing over 1,095,000 jobs. More alarming is the fact that the price of oil was at $100.86 in February and rose to $124.31 a barrel on June 3 further increasing that percentage and corresponding job losses.

And make no mistake about it Ohio jobs are being lost:

1. Gas Guzzlers Cause Layoffs at GM: GM announced Tuesday that it is closing four of its assembly plants, including one in Moraine, Ohio, that makes trucks and SUVs. The reason: High gas prices make gas-guzzling vehicles no longer affordable for many Americans.
   
   According to the Cincinnati Business Courier, the Moraine plant will close by 2010 or sooner if market demand dictates that, a company official said. The move likely will cost 2,400 local jobs.
   
   Speaking at the automaker's annual shareholders' meeting in Delaware Tuesday morning, company officials cited a clear consumer shift away from trucks and SUVs because too few can afford to fill their tanks.
   
   The Moraine plant, in Montgomery County south of Dayton, produces Chevrolet Trailblazer and GMC Envoy and Envoy Denali sport utility vehicles, Saab 9-7X and Isuzu Ascender vehicles and employs 2,400 directly. The plant also supports 100 suppliers.


2. Diesel Costs Increase Retail Costs: According to Columbus Business First, the national average retail price for diesel reached a record $4.33 per gallon last month. Even before the record, the trucking industry had been desperately seeking more long-haul drivers amid projections that America would be short 114,000 workers by 2014, according to "The U.S. Truck Driver Shortage: Analysis and Forecasts,'' a study done by Global Insight for the American Trucking Association.
   
   The combination of high prices and limited truckers prompted the Ohio General Assembly last week to impose uniform weight limits for trucks that haul steel coils.
   
   Today, a single truck can carry a load consisting of one or two steel coils under a special permit, as long as the total weight is not greater than 120,000 pounds. The total weight limit for transporting three coils, however, is limited to just 92,000 pounds. When the new law takes effect, a three-coil load will fall under the same 120,000-pound limit allowed for one or two coils.
   
   Even with the change, the trucker shortage is expected to continue. An estimated 935 carriers – or about 2 percent of the nation's total trucking capacity – went bankrupt in the first quarter of this year, according to the American Trucking Association. Trucking company failures are the highest since the 2001 recession.


3. Airline Costs Soar and Competition Disappears: ABC News this week said rising fuel costs are causing airlines to scale back and could prompt a new round of bankruptcies. Continental Airlines, with a hub in Cleveland, announced 3,000 job cuts on Thursday.


4. Highway Patrol Funding Short Over Fuel Costs: According to Jim Nash at the Columbus Dispatch, fuel costs for the Ohio State Highway Patrol have increased by 26 percent over the past nine months.
   
   The bottom line: "The agency that patrols state highways, guards’ state buildings and aides in highly technical police investigations is facing a cash crunch."

We’re about to feel this crunch through school transportation costs, public safety costs, snow and trash removal and transportation of basic goods and services like the milk at our local grocery store.

Can there be any doubt, “It’s the gas tank, stupid,” is what this year is about? And understanding how that $50.13 gas bill for a four-door sedan is THE issue in 2008.

Who’s to Blame?

According to Congress’ Democratic Policy Committee, the average family with children spent $1,903 a year on fuel costs in 2001 and is expected to spend $4,401 in 2008 – an increase of 131%.

At the same time the percentage increase in oil profits between 2001 and 2008 was 176%. In fact, in 2001 the five largest oil companies had profits amounting to $44.7 billion. In 2007 those same big-five company profits were $525.3 billion.

And what do corporate leaders have to say about it? Well, in recent U.S. Senate hearings, Exxon Mobile’s Stephen Simon pointed out that only 58% of the price of oil in 2007 reflected the price of crude oil. And he and other big-five Oil execs all using corporate accounting charts and schemes echoed a similar theme while claiming that corporate profits amount to 4% of total gas costs while on average 15% of gas costs go for taxes.

So that got Shadows thinking. If according to “big oil” 58% of my bill goes for crude oil and 15% goes for taxes, that is only 73% of my bill. So if that leaves 27% of my bill for “big oil” and they only make a 4% profit – who gets the other 23%. I mean is that the amount “big oil” spends as overhead? Is “big oil’s” overhead more than the federal and Ohio government spends on road construction?

So, the quest in the Shadows of my $50.13 bill is to break down, just how much of the bill goes toward crude oil, how much to the hated state and federal gas tax, and how much is left over for the oil companies to both fund their operations and keep as profit.

Understanding crude oil and foreign oil

Oil executives indicate that they do not have capacity to generate their own refined oil. In fact, back in March 2006 Professor Severin Borenstein of Cal-Berkeley told the U.S. Senate Judiciary Committee, “No U.S. oil company has a large enough share of that market to be able to profitably exercise market power and raise prices. Borenstein said two years ago that oil prices have risen because:

• Demand growth has been very rapid and crude oil production is constrained in the short run;
• And some producers are able to exercise market power, “most notably Saudi Arabia,” which is able to move oil prices significantly with its output decisions.

That foil of foreign oil must have been what was on the minds of U.S. Senators in April when Senator Chuck Schumer said, “The Saudis have to understand this is a two-way street. We provide them weapons, our troops provide them protection, and then they rake us over the coals when it comes to oil.”

Having said all of that, Exxon Mobil boasted that its 1st Quarter 2008 profits were up 17% from the first quarter of 2007. Conoco-Phillips experienced similar increases, and in an April 24, 2008, press release wrote:

“The increase from the first quarter of 2007 was primarily due to higher commodity prices, partially offset by higher taxes, lower volumes, a reduced net benefit from asset rationalization efforts, and increased operating costs.”

Remember, American oil companies do conduct some of their own refining even if it is miniscule in comparison to Middle Eastern oil barons. So as Prof. Borenstein told the Senate in 2006:

“The record profits that oil companies have reported recently are primarily due to the extremely high price of oil. If a company was expecting to make a profit selling oil at $25/barrel and it can now sell that oil for $60/barrel, the extra $25/barrel is nearly all profit. These companies did not cause the price of oil to go up. They are just the lucky beneficiaries of the tight world oil market.

Breaking down my state and federal gas taxes

In the post-Reagan era for both parties, taxes are also an easy prey. An assault on gas taxes seemed to be a new theme of oil executives in May, even though it does appear that oil companies are acknowledging that a large driver of their profit is “higher commodity prices.”

The average cost in Ohio for gas has increased from $1.42 a gallon in May 2003 to $3.78 a gallon in May 2008.

So it is no surprise that out in Potomacland both “big oil” and politicians including both Senators John McCain and Hillary Clinton and others have prominently called for a holiday suspension of the gas tax. But, ironically taxes seem to be the most stable cost in my $50.13 bill in terms of market fluctuations. They are a set percentage per gallon levied by government regardless of the cost of crude oil.

Combined taxes on gas for Ohioans are 46.4 cents a gallon for regular gas and 52.4 cents a gallon for diesel, with an additional 3 cents a gallon levied for commercial vehicles. Of those taxes, federal taxes amount to 18.4 cents with 24.4 cents for diesel fuel. Ohio legislators raised the gas tax incrementally, 6 cents per gallon in the past five years to 28 cents a gallon.

Most of the federal funds go into the Federal Highway Trust Fund. As for Ohio, in a rather complicated formula, (as is the case usually in government) your gallon of gas gets dispersed in the following ways (click link to see the distributions):

• Ohio counties, municipalities and townships for roads and bridges
• State and local government highway fund
• Ohio Turnpike (revenues from stations on the Turnpike)
• Ohio Department of Transportation

After crude oil and taxes, what does “Big Oil” get & scapegoating

So to break down my $50.13 bill:

• Crude Oil: 58% of the total bill, according to oil execs’ testimony, goes toward crude oil or $29.08 of my total bill.
• Federal Taxes: 18.4% of each gallon (12.565 gallons) goes toward federal taxes or $2.31.
• Ohio Taxes: 28% of each gallon (12.565 gallons) goes toward Ohio taxes or $3.52.
• Big Oil expenses and profits: The remainder of my bill or $14.22.

That means that I can account for $35.91 of my bill going to pay for crude oil, federal and state taxes.

So “big oil” as it were had a profit of $14.22 of my $50.13 bill of which they had to pay refining, transportation, administrative costs and the gas station attendants or franchisees which are of course subject to corporate accounting sleight of hand.

But even with modern corporate accounting, let’s put this in perspective. Both the Federal and State government funds our highways with $5.83 of our bill – road construction, signage, employees, administrative costs and even snow plows and trucks.

So let’s say for the sake of argument that “Big Oil” needs $4.00 of that profit for expenses --after all it can’t cost more to refine and distribute petroleum than it does for the administrative costs, labor and materials government uses to pave and maintain all of our federal and Ohio roads and highways. (Either that, or government is more efficient than “big oil.”

That would still leave $10.22 of my bill left over for the oil companies to explain just how they spent it– or more likely how it plays into those record profits.

So let’s get this straight, oil executives last month complained in Congress about $5.83 of my bill going to taxes which pay for roads and infrastructure for my car – but they rake in $14.22 of the very same bill – or in my generous example about $10.22 of potential profit. And that doesn’t even count any profit they make out of the crude oil they themselves generate from their own oil drilling for crude oil.

And as I write this, with MSNBC blaring in the background, I hear Sen. John McCain talking about the convenient foil of the Middle East in a town hall meeting in Louisiana and about how our money winds up in the hands of terrorists from Arab lands and how according to Sen. McCain half of our United States Trade Deficit is over oil.

Well pardon me for being concerned not just about the price of crude oil in Middle East oligarchs, but also about the $14.22 cents of my bill that go to “big oil.’’

This is coming from the same Sen. John McCain who:

• Has Taken More than Half a Million Dollars from Oil and Gas Interests-Almost Half of Which Came During This Cycle: Nearly half of McCain's total from oil and gas interests (42.3 percent) has come since he started this cycle in 2007. (Analysis of Data from Center for Responsive Politics)
• Has Voted to Protect Big Oil Tax Cuts, and His Big Corporate Tax Cut Will Give Them Even More Tax Breaks: In 2005, John McCain voted twice against legislation that would have taxed windfall profits of the oil companies and provided American consumers with a tax credit to offset higher oil and natural gas prices brought on by hurricanes, including Katrina. (S. Amdt. 2635, S. 2020, Senate Roll Call Vote 341, November 17, 2005; S. Amdt. 2587, S. 2020 Senate Roll Call Vote 331, November 17, 2005)

Sen. McCain has also proposed offering cutting the corporate tax rate by 10 percent-meaning more tax breaks for his big oil donors. Yet, McCain's tax cut offers very little for America’s struggling families. "The McCain plan would predominantly benefit the most fortunate taxpayers, offering two new massive tax cuts for corporations and delivering 63 percent of its benefits to the top 1 percent of taxpayers." [CAP, 3/08]

It’s the gas pump, stupid

All of which brings us full circle.

Will we pay more, not only at the pump but also for school bus transportation, for fire engines, police cars and snow plows, for milk and bread and even for military vehicles?

Will we come to terms that it is not only the Middle East nations that benefit from these costs that lead to job losses, but also our own national “big oil” companies?

Will we recognize that gas taxes are a convenient foil but do not rise and fall with the market – and more importantly pay for roads and infrastructure that no doubt we will pay for some other way if taxes are curtailed?

And most of all for our brethren and pollsters that anoint the issues of the day in Potomacland, is there really any other issue that matters more than gas prices this election cycle?

• Iraq war – oil.
• Vulnerability to terrorism – oil.
• National trade deficit – oil.
• Recession – oil.
• Ohio economy – oil.
• Health Insurance – Uninsured – job loss -- oil

Heck, even foreclosures are affected when the average family is having a $2,000 a year increase in gas prices, leaving less available to pay the mortgage.

The funny thing is that this all started with a $50.13 cent gas bill and a forlorn mother of three tired of the cost of gas standing at the pump. Will folks in Potomacland realize that it’s about her and understanding what this gas pump transaction really means in her life.

And after reams of paper, much study of articles and congressional testimony and a number of phone calls -- all of which make breaking down my $50.13 bill sound like physics – I ended up where I began to begin with.

If we’re paying at the pump – it seems pretty likely so will the politicians in November.

It’s about the gas pump, stupid!