This conversation takes place at a gas station. 

Gas Pumper #1: Man, I sure hope Congress passes that windfall profits tax on these greedy oil companies.

Gas Pumper #2: Why?

Gas Pumper #1: It’s about time those oil companies get their comeuppance.

Gas Pumper #2: What do you mean?

Gas Pumper #1: They are gouging us and making billions of dollars in the process.

Gas Pumper #2: How much does the oil company make from each gallon of gas?

Gas Pumper #1: I don’t know about a dollar, maybe two.

Gas Pumper #2 (replacing the hose on the pump): Would you be surprised to learn that the oil companies make between 10 and 13 cents per gallon?

Gas Pumper #1:  You are lying; you work for an oil company don’t you.

Gap Pumper #2: Nope, I don’t.  I read and try to know about an issue before I make a decision.  Furthermore, that company who made that soda your wife is drinking, has a higher profit margin than this oil company.  Now, do you want to know who is making money from a gallon of gas?

Gas Pumper #1: I have a feeling you are going to tell me.

 Gas Pumper #2: That’s true, I did intend to.  Anyhow, it’s the various local, state, and federal governments.  They make up to 68 cents a gallon depending on where you are pumping the gas.  The federal government alone collects 18.4 cents a gallon, more than the oil company makes.

Gas Pumper #1: Since you’ve not left I assume there is more.

Gas Pumper #2: You are very observant.  First, it’s OPEC, not the US oil companies, that set the world’s price on oil.  Second, oil companies do want to expand production.  Exxon has spent 15 billion dollars trying to do just that.

Gas Pumper #1: But the profit garnered by Exxon earlier this year was 11.7 billion dollars or 1,300 dollars a second!

Gas Pumper #2: Sounds impressive doesn’t it.  Do you remember the soda company? They along with chemical companies, electrical equipment manufacturers, and computer companies all have a higher profit margin.  But let’s say we tax those oil profits.  Who pays?

Gas Pumper #1: The oil company pays and they should give something back.

Gas Pumper #2: Well they didn’t exactly steal the money from us, we paid it if somewhat grudgingly.  If we were serious about cutting the profit to the oil companies we’d use less. But to date we’ve not done anything to drive (no pun intended) the price of gas down.  The consumption of gas actually increased last year!

Gas Pumper #1: So what! I still say tax them and tax them heavy!

Gas Pumper #2: This tax will impact you more than you know.  First, the price of gas will go up.  Taxes are not paid by corporations.  They are paid by us.  They are paid in the form of higher prices. So while those folks in Washington contemplate higher taxes on gas for us and a windfall profits tax for the oil companies, it’s a double whammy on us!   Furthermore, if the profits go down chances are your retirement portfolio will drop a bit in value as well.  It won’t kill the portfolio because most likely you have mutual funds that are highly diversified, but there may be an impact.  My friend it all rolls downhill.

Gas Pumper #1 (finally replacing the gas hose): What do we do? We’ve got to do something.

Gas Pumper #2: You are right. WE have to do something!  WE can’t leave it to the politicians. You could start by reconsidering that Hummer.  If you really don’t need it, if it’s just a status symbol trade it in and get something that is more fuel efficient.  If you do need it, drive less. That could help lower the demand for oil.    WE could walk or bike more and pay less in gas prices.  That helps us from a health standpoint as well.  There are a myriad of things WE can do.  The idea is to not hope somebody else, that somebody being in the form of politicians, solves our problems for us.  WE must get in there and do it ourselves. 

Gas Pumper #1: Maybe you are right.  What else can I do?

Gas Pumper #2: Do your homework and tell folks what I just told you, if the word gets out maybe WE can spend less at the pump.

*The facts in this conversation are from Robert Hardaway a Professor in the College of Law and Natural Resources Law Program at the University of Denver and from a CNN article by David Ellis printed on February 1, 2008.  Interestingly, there was no mention of profit margin or any of the other important information (except for the increase in demand) in Mr. Ellis’ article.