Flat out wrong. That’s the only way to describe the oil industry’s claims about a proposed increase to Washington’s hazardous substance tax. Consider this ill-informed article at Washington State Wire:
[subhead] As Much as Six Cents a Gallon
The money has to come from somewhere, though—your local gas station, for instance. Opponents say the plan could raise gas prices as much as six cents a gallon, if oil companies can find a way to pass the full amount on to consumers. Because of the competitive nature of the oil business, refiners may have to eat some of the cost.
This is wrong—obviously wrong—on at least two counts. 1) It’s bad math. 2) It’s self-contradictory.
First, let’s do the math. The current tax is 0.7 percent on the wholesale price of toxic substances, including gasoline and other refined petroleum products. A new bill would raise the tax to 2.0 percent.
Calculating the maximum impact on consumer gasoline prices is simple arithmetic. Assuming that the wholesale price of gasoline is $2.30 (roughly consistent with recent and current prices, as well as the near-term futures market) the calculation is simple: $2.30 x 0.7% = 1.6 cents. In other words, the current tax adds 1.6 cents to the price, at most.
Now let’s calculate the proposed higher tax rate: $2.30 x 2.0% = 4.6 cents. In other words, the proposed higher tax rate could raise the tax amount to 4.6 cents.
The last step is so easy that even an oil lobbyist can do it: 4.6 cents – 1.6 cents = 3 cents. So, in reality, the proposal might increase prices by just 3 cents. Not 6 cents. 3 cents. The oil industry has wildly overstated the effect of the new tax. (It’s an over-statement of 100 percent for math-inclined folks). The only way the oil industry claims could be accurate is if wholesale gasoline prices were about double what they actually are.
But it gets worse: the arguments from the oil industry are actually contradictory. Remember that they admit “refiners may have to eat some of the cost.” In other words, even according to the oil guys, consumers won’t pay the full cost of the tax anyway, because the refiners will pick up a portion of it. So the real impact on consumers is less than 3 cents.
The extent of “price pass-through” is a somewhat debateable subject. It’s often assumed that gas taxes get fully passed on to consumers, but that may not be true. (And it’s instructive that the oil industry apparently believes it’s not true.) In fact, a 2004 article in the Journal of Economic Education makes a strong empirical case that gasoline excise taxes are not fully reflected in consumer prices—meaning that producers and consumers share the cost of new taxes (and share the benefits of reduced taxes).
Still, one might wonder whether its fair for the oil industry and refiners to pay a higher tax rate on the import of hazardous substances into Washington. I’ll leave that values question alone except to note one final thing. The tax increase helps pay for water cleanup. And while it’s levied on all hazardous substances that harm water quality, not just on oil, petroleum products are, by volume, easily the largest pollutant in the runoff that fouls Puget Sound.
Timr
You may be right about the math, but you are helping the oil industry by publishing an article focused on the increased cost to consumers. You are broadcasting their strongest message instead of focusing on much more compelling arguments for the hazardous substances tax…like it’s a critical investment for future generations…Washingtonians are willing to invest in a cleaner environment and healthy future…don’t engage the oil lobbyists by quibbling about pennies…
Erik Smith
As the author of the story described here as “ill-informed,” I guess I’m a little bothered. The six-cent-a-gallon figure is widely talked about in Olympia, sort of an extrapolation from last year’s oil-barrel fee proposal, which was widely considered to have an impact of four cents a gallon. I imagine that the duelling-statistic argument will have a chance to play out when the proposal hits legislative committees in the next few days, and we’ll get a chance to see how the calculations were made. But the statement in the story is a completely accurate reflection of the argumentation at the state Capitol. I’m a reporter. This is what reporters do.If you allow me to read between the lines here, the interesting thing I see in this posting is that there appears to be a bit of disagreement within the environmental community about the impact of the tax increase on consumers. Yesterday Gov. Christine Gregoire stated at a news conference that she believes there will be no pass-through of the tax to consumers. Personally I find this a little hard to believe, though I reported her comments dutifully. Her statement also contradicted some of the comments that have been made by advocates of the bill. A story in Saturday’s Olympian, for instance, quotes one as predicting that the pass-through will be about three cents.Okay, so if we accept people’s word on things, and we give equal weight to the business and environmental lobbies (which any fair-minded person would do), it’s reasonable to say that the pass-through will be somewhere between three cents and six cents a gallon. But not even the industry folks are claiming that the full six cents will go to consumers.So what are we talking about here? A dispute over a penny? Two pennies? (We haven’t seen industry’s estimate yet for the amount of the pass-through.) Now, I’m sure that there was a different goal in mind for this posting—it sounds like it was intended as an indictment of the claims being made by industry. And I’m sure that you called my article “ill-informed” because it wasn’t an advocacy piece that reflected your position.But actually I think it shows there is plenty of common ground here. The environmental community and industry appear to be in total agreement that a portion of the tax increase will be passed on to consumers. The only question is how much.Thanks for clarifying the matter,Erik SmithWashington State Wirewww.washingtonstatewire.com
Eric de Place
Erik,For now, let me just respond to one element of your comments. You wrote:”Okay, so if we accept people’s word on things, and we give equal weight to the business and environmental lobbies (which any fair-minded person would do), it’s reasonable to say that the pass-through will be somewhere between three cents and six cents a gallon.”But that’s crazy. The truth is not halfway between the claims of two interest groups. The truth is just the truth. And in this case, the truth is self-evidently available to anyone who can do basic arithmetic. Better journalism would have noticed that. At minimum, the article would not have included a subhead parroting the (false) claim of the oil lobby.
Timr
Erik,I have to agree with Eric…this is exactly the type of information that begs for independent research and analysis from a journalist…it is lazy to do battling sound bite stories and call them balanced…