The average price of a gallon of regular gasoline in the United States increased by one dollar, to $ 3.31, during Joe Biden’s first year in the White House. Now, supercharged by the war in Ukraine, the price has risen to $ 4.27 a gallon. The average one, however, is misleading. The actual price of gas at the pump varies widely by state, with a difference of nearly $ 2 per gallon between the most expensive and least expensive states. While some of these differences have to do with geographic factors affecting distribution costs, state policies, including taxes and regulations, also play a significant role in the very different burden consumers face across the country.
The highest gas prices are found disproportionately in the highly taxed and heavily regulated democratic states, while the lowest gas prices occur in the so-called red or purple states. California leads the way with a whopping $ 5.78 per gallon, followed by Nevada, Washington, Oregon, Arizona, Illinois, Connecticut, and New York among the bottom 48 states (Hawaiian and Alaskan geography make any comparison with the rest of the country). At the bottom is Kansas, at $ 3.81 per gallon, followed by Missouri, Oklahoma, Arkansas, Nebraska, North Dakota and Iowa.
The price of a barrel of oil represents about 56 percent of the cost of this gas. Taxes on average make up about 15% of the price, while distribution and marketing costs make up the rest. State gas taxes are an obvious culprit, but extraordinary fuel standards beyond the national level also drive up prices, as do regulatory constraints on pipeline and refinery construction, which inflate distribution costs.
California makes a hat trick of oil: it hits consumers with high taxes, expensive fuel standards, and regulatory barriers to energy infrastructure. The Golden State has the second-highest gas tax in the nation, at $ 0.53 per gallon (behind only Pennsylvania, which stealthily values its $ 0.58 per gallon tax on distributors, which then passes it on to consumers) . Rounding out the top ten most taxed states are Washington, New Jersey, New York, Illinois, Ohio, Maryland, North Carolina and Oregon. At the bottom are Virginia, Missouri, Mississippi, New Mexico, Arizona, Oklahoma and Texas. The average tax between these states is only $ 0.18 per gallon. The tax difference alone between the lowest and highest taxed states can add more than $ 5 to the cost of filling a 14-gallon tank.
Gas taxes are known as “dedicated” or “utility” taxes, because in most places governments impose them for the express purpose of financing the infrastructure – roads and bridges – used by vehicles. But as is often the case, the payoff for higher and higher taxes is minimal. In fact, some places with the highest gas taxes have some of the worst roads. The Reason Foundation’s annual freeways report measures the amount of money states raise from residents for freeways and compares it to the performance of state’s highway systems, including the condition of its roads. The states that generate the least bang for consumer gas tax dollars are New Jersey, Rhode Island, Alaska, Hawaii, New York, California, Delaware, Massachusetts, Washington, Florida, and Illinois. Conversely, some of the lowest-tax states – North Dakota, Virginia, Missouri, Kentucky, North Carolina, Utah, and Kansas – provide some of the best infrastructure at a reasonable cost for their residents.
One problem is that the higher the gas tax, the more likely it is that some governments will steal revenue and use it for other purposes than roads. A 2020 Reason Foundation study found 22 states divert funds from road-related spending. The top five states in this category, led by New York and New Jersey, steal about a third of their gasoline tax money for other purposes. Albany is known for using gas tax money to finance wages and benefits for Department of Transportation workers, whose wages in other states are funded from the general budget. New York also uses gas tax money to pay off bonds issued years ago, financing debt for old projects rather than new buildings. As a result, the state controller wrote, the state road and bridge fund funded by the gas tax “no longer serves its original purpose of ensuring reliable and predictable investments in the future of state transport infrastructure.” New Jersey, meanwhile, spends part of its increasingly hefty and inflation-adjusted gas tax on alternative transportation methods, including building bike lanes and financing underused light rail lines. Connecticut channels roughly $ 1.1 million a year from its gas tax to Temporary Assistance for Families in Need, aka welfare.
High taxes are often accompanied by heavy regulations that push prices up further. The latest trend among states is to require a so-called low-carbon fuel standard at the pump, which reduces the carbon intensity of the gas below federal standards but comes at a higher cost. California implemented the first low-carbon standard in 2013, which initially raised prices by about $ 0.12 per gallon. In 2018, the state began introducing stricter standards, which will raise the price of a gallon of gas by $ 0.36 per gallon by 2030, according to projections from the California Air Resources Board. Oregon has approved a similar program, which could ultimately cost consumers $ 0.17 per gallon. Washington, New Mexico, and Colorado are just a few of the other states that also consider the most expensive fuel.
Limits on infrastructure add to costs. Oil will not run your car; refineries must convert it to gas. But thanks to extreme regulations, the United States has built few new refineries in the past 50 years, so the gas has to be transported great distances to reach some consumers. Pipelines do this efficiently, but many states and the federal government have cut those too. Other types of transportation, including trucks, can be more expensive. Few pipelines cross the Rocky Mountains to serve the west coast states, which therefore face the highest distribution costs and are often described as “fuel islands”.
Of course, California is rich in oil, but the state’s newest refinery was built in 1979, while others are so old that the owners are looking to divest them. A state with its own potential to produce oil and turn it into gas is thus left to carry supplies at enormous cost. And the situation is unlikely to improve anytime soon: California Governor Gavin Newsom said last year that his state should aim to eliminate drilling by 2045. Other states will face similar challenges, especially if they prohibit or restrict construction. of gas pipelines. All four of the new refineries opened in the United States in recent years are located in Texas, which poses a logistical challenge for users in distant states.
In our federalist system, state policies produce significant variations in the costs of goods and services. But few products are subject to so many state variations that their prices differ across the country by up to 50 percent, as with gas. The extent to which this additional cost affects the economy of a region increases or reduces the competitiveness of a given state. For the average consumer, it is becoming a question of how much pain he can endure at the pump.
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