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High Price of Gasoline: Another Manmade Disaster

by Adam Price |
October 11, 2005
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San Jose, CA - The price of gasoline has risen 65% from only one year ago, topping $3 dollars a gallon in the aftermath of hurricanes Katrina and Rita. This has forced many working families to cut back on spending or go deeper in to debt. The big energy companies and the corporate media have been blaming this year’s spike in gasoline prices, and the spike in heating bills to come, on hurricanes Katrina and Rita, which have shut down much of the gasoline refining and natural gas infrastructure along the coasts of Texas and Louisiana. However, just as the disaster that took place in Louisiana and Mississippi was as much manmade as an act of nature, so too is the rise in energy prices.

For years oil companies have been growing ever larger through mergers and by buying up other companies, leaving the market for gasoline in the hands of a few giant corporations. Over the last 25 years, the number of refineries in the United States has fallen by more than half, from 324 in 1981 to only 148 today. Big oil corporations have not built a single new refinery since 1976, and have blocked the construction of new refineries. This squeeze on the supply of gasoline has raised prices and big oil’s profits. At today’s price of $65 a barrel, the cost of oil only makes up $1.60 of each gallon of gasoline, with the rest going to the oil companies. Their refining and marketing profit was four times as high in 2004 as the year before, and Exxon-Mobil alone made more than $40 billion in profit last year. This represents a rate of profit of 40% on their capital (refineries, oil wells, etc.)

In the 1970s the Federal Trade Commission began an investigation into the oil companies’ efforts to reduce the number of refineries. However, this investigation was dropped by the Reagan administration whose ‘free market’ policies meant freedom for big corporations to conspire to raise prices to fatten their own profits. Today, the Bush administration is using the high price of gasoline as an excuse so it can give more subsidies to oil companies (who already make billions in profits), weaken environmental standards and give away federal lands to be used for refineries, in an end-run around local community concerns.

As was the case with the hurricanes, the poor and oppressed nationality communities (Black, Chicano and Latino, Native, Asian and Pacific Islander) have been hardest hit by the rise in energy prices. The cuts in public transportation following the last recession in many localities have made working people even more dependent on their cars for transportation. Workers and the poor who have little in the way of spending on luxuries or savings have had to cut back on driving to work or for groceries, rely more on charity or borrow more just to make ends meet.

With winter coming, and with it higher heating bills (at of the end of September, natural gas bills are expected go up 60% while heating oil costs will rise ‘only’ 30% from last year), will the poor and oppressed nationalities be left in the cold just as they were left to rising flood waters of New Orleans? Being able to pay for heat is not just a household budget issue, but also a matter of life or death in too many cases.

Many have mentioned the need for states to ban utilities from cutting off people’s service this winter, and the need to fully fund federal Low Income Home Energy Assistance (LIHEA), whose budget has not been set yet. But more needs to be done. The federal government, which is all too willing to cut the taxes of the wealthy, should instead cut taxes for lower-income households through a reduction in the payroll tax. This would put more money in their pockets, since many lower-income households pay more in payroll taxes than income taxes. To offset the payroll tax cut, the government can eliminate the cap on Social Security and Medicare taxes - getting rid of the ‘cap’ would only affect people making over $90,000 per year. The LIHEA needs to be dramatically expanded beyond the $300 per family it paid last year, to make sure no household loses heat this winter. To finance an expansion in the LIHEA, a special profits tax on oil companies could be put in place.