Gathering Place
Gordon Trimble
Let’s tax profiteering
by isle oil companiesThe Legislature in January held two hearings related to the problem of exorbitant gasoline prices in Hawaii. The first featured a briefing on federal tax evasion by Chevron through manipulation of the price of oil bought in Indonesia, which could open the way to a suit for unpaid Hawaii state taxes. The second heard the initial report by a consulting firm on the efficacy of the complex and controversial gas price-cap law passed last year by the Legislature after the Cayetano administration failed to win a $1.8 billion price-fixing suit against the refiners.
In these hearings, two points became clear:
>> Hawaii consumers for years have been victims of price gouging by the local refiners -- Chevron and Tesoro.But a third point is even more critical: The oil refiners are making huge profits in Hawaii. In the mid-1990s, Chevron derived more than 20 percent of its nationwide profits on gasoline from the 3 percent of its sales that it made in Hawaii; in 2002, Tesoro reported that its Hawaii refinery had the largest gross margin of all its refineries. This profiteering -- for that is what it is -- is possible because the market in Hawaii is not genuinely competitive. The two refiners are able to use their dominant position to earn these excessive profits.>> Gasoline pricing is an incredibly complex subject, in which the suppliers are able to present the numbers in the way most favorable to them and the government has great difficulty enforcing laws and regulations.
These points lead to a simple proposition: Instead of likely fruitless efforts to regulate the price of gasoline in our market, and regardless of the outcome of suits over past violations by the oil companies, why don't we tackle the basic problem now by taxing the companies on their excessive profits?
To this end, I introduced in the Legislature Senate Bill 1475, the "Windfall Profits" Act, which would charge refiners a significant percentage (50 percent or possibly more) of their excess profits on gasoline sales in the islands.
Such a tax would not be crippling to the refiners. It would neither raise prices nor result in a reduction of supply. It could make due allowance for the relatively small scale and high costs of the Hawaii refineries, and also provide incentives for operating efficiently. And, of course, the refiners could avoid the tax completely if they reduced their prices to more normal, competitive levels.
At the same time, a windfall profits tax would bring substantial benefits to our state. By one estimate, prices are now around 30 cents a gallon higher for regular unleaded gas than it would cost to import and sell refined gasoline from, for example, Singapore.
The difference amounts to more than $120 million in excess profits for the approximately 400 million gallons of gas sold annually on Oahu alone. At a 50 percent tax rate, this would yield a minimum of $60 million in revenue to the state.
While many legislators oppose any new taxes, this actually would save state taxpayers money. If there are problems with the label, we could more accurately describe it as the right of government to share the monopoly tax currently collected by refiners.
Chevron and Tesoro can be expected to challenge the proposal. They undoubtedly will dispute the idea that they are making excess profits, and they presumably will argue that a major reason for higher prices here is that it is more expensive to refine gas in Hawaii. I encourage them to present their case in an open and factual manner.
Either way, consumers win. Whether it helps cover the budget deficit or leads the refiners to reduce prices to consumers, a tax on gasoline profiteering would let us keep in Hawaii most of the extra money that we are now paying -- and shouldn't have to pay -- for our gas.
Sen. Gordon Trimble, a Republican, represents the 12th District (Downtown, Waikiki).