Large gas tax hikes may be on the horizon – especially if gas prices stay as low as they have been over the last several months. Democrats are staring at a $1.2 trillion budget deficit and need to money somewhere to attempt to reduce the deficit.

The National Commission on Surface Transportation Infrastructure Financing is proposing that Congress raise the gas tax an additional 10 cents a gallon and the diesel-fuel tax 12 to 15 cents a gallon. This translated into tax increases in excess of 50% of the current amounts paid. Currently, Federal gas and diesel taxes are 18.4 and 24.4 cents per gallon, respectively. All of these taxes are on top of the taxes levied by individual states which range from 8 cents (Idaho) to 36 cents (Washington). Rates for North Carolina and South Carolina are 30.15 cents and 16 cents, respectively. Click here for more Motor Fuel Excise Tax Rates.

In addition, the commission is pushing to tie the rate increases to inflation so that they will automatically increase instead of having to be voted on and approved.

Opponents of the gas tax argue that it unfairly taxes lower income families – since virtually everyone buys gas. My guess is that many of these families have incomes lower than the $250,000 threshold in which President-Elect Obama promised no tax increase. Of course, his argument will be that he was talking about income taxes. Bottom line, a tax increase is a tax increase and they will raise the money anyway they can. They have to pay for all of these bailouts and new government programs somehow.

After reading Donna’s post today, “Is Exxon really evil?”, I wanted to add some additional comments. There are so many, I will number them.

(1) People have a huge misconceptions about who is making the money. The people who are making the money are the Exxon shareholders and people who invested money into a company that provides us with Energy. They invested their money not to be nice to everyone else. They did so in hopes of a return on their investment. Just like everyone else who has invested money into other stocks, mutual funds or even a certificate of deposit at the local bank. They deserve a return on their investment. I am willing to bet that almost all Americans that invest at most any level own some portion of Exxon (or the other oil companies). Most of us own mutual funds. Most diversified mutual funds are going to own some oil company stocks.

Let’s examine this return. In 2007, Exxon made $40.6 billion in Net Income. I have heard many people say, “No one should be allowed to make this much money in this economy!” As of this morning, Exxon’s market capitalization was $411 billion – a massive company by any measure. Based on Exxon’s market capitalization, Net Income only yielded a return of around 10%. Their return on assets was only 16.8%. Under no stretch of the imagination are these rates of return excessive.

(2) Another thing to consider is that the majority of Exxon’s profits are non-US profits. Seventy-five percent (75%) of their Net Income was earned outside of the United States. Certainly, when a US company earned $30.5 billion in profits outside of the country, it is a good thing. After all, they are bringing the bulk of those profits home to American shareholders.

(3) Exxon had an Effective Income Tax rate in 2007 of 44% for a total of $30 billion in income taxes. (Yes, 44% – that is not a typo.) Yet, many politicians want to take them more? In addition to Income taxes, they also have to remit a sales-based tax each time they sell a gallon of gas – these totaled $32 billion in 2007. They also have a host of other excise taxes and duties that they pay annually – totalling $44 billion in 2007. After adding up everything from Exxon’s activities – their 2007 tax bills totaled $106 billion. Their Net Income after taxes was only $40.6. In other words, for each $1 that Exxon got to keep, they paid out $2.61 in taxes.

(4) The above does not include the taxes that the shareholders (anyone that owns stock in Exxon either directly or through a mutual fund), had to pay when they got their dividend. This has got to be the biggest travesty to me. Why does the government get to double dip? Why do they get to tax Exxon on the profits and then when they give the shareholder’s their share – tax them again? This is the case with all C-Coporations. In my opinion, dividends should not be taxed. The income has already been taxed once. Regardless, Exxon issued dividends of $7.6 billion in 2007. There is no way to determine how much tax was paid on this since, there are many considerations such as different tax rates, differed taxes through retirement plans, etc. I would estimate another 20% – for another $1.5 billion paid into the system by shareholders.

(5) If we could simplify Exxon to be only a gas vendor (which we can not because it is so much larger than that), the amounts they make on a gallon of gas would break out something like this. Assuming the price they received for a gallon of gas was $3.50 per gallon, the following would flow through: Cost of acquistion of crude oil/product and converting it to gasoline and delivering it to the pump, an average of $2.33 per gallon, Sales-taxes included in price paid by consumer that must be remitted by Exxon, an average of $0.28 per gallon. Other taxes and duties that Exxon is require to pay, an average of $0.37 per gallon. Income taxes that Exxon is required to pay, an average of $0.27 per gallon. Income that is available to be distributed to shareholders $0.15 per gallon (which are taxed again at the individual level once distrubted). A net of a mere 4%. Seems like they are not making enough to me. Of course, as I said before, we can’t simplify things this much.

(6) Another way to look at the Exxon tax situation is that if Exxon did not have to pay or remit their $106 billion in worldwide taxes last year, they could have charged everyone a lot less for a gallon of gasoline and their shareholders could still have made the same return on their investment. They could lower the price of all of their products by 33% and make the same profit!

The oil companies are not the problem. The problem is that the government is too big and it takes way to much capital to run it. We have got to stop throwing money at our problems – it does not work. We need solutions to problems – not more money thrown at them.

It seems almost everyday that I hear someone complaining about the price of gas. The media feeds the fury with constant stories each time the gas price inches up a couple of cents – or even down a couple of cents. The media can not get enough out of the whole gas price issue. Personally, I am sick of hearing about it. Gas prices are up. They are higher than they were 5 years, 10 years, or even 15 years ago. The are few things that have not increased in price during this time.

If we take a closer look at the historical price of gas, the price adjusted for inflation is hovering the same price as in 1920. Personally, I would expect the inflation rate for the cost of a gallon of gasoline to exceed the overall inflation rate. It is derived from a natural resource which is likely to eventually run out. In addition, considering who controls much of the petroleum in the world, we are lucky it has not grown at a much much faster rate.

It also puzzles me that the people I hear complaining about the price of gas as usually the ones filling up their 13 miles per gallon SUV. If the price of gas is such an economic pain, why don’t they just get a more efficient vehicle?

An interesting article was published yesterday on CNNMoney.com that discussed the prices of gas in developed countries acrossed the globe. Bottom line – gas is cheap in the United States. The U.S. ranked #111 as the most expensive gas prices list while ranking #45 on the cheap gas prices list Most of Europe is paying over $8 per gallon. The highest priced nation, Bosnia-Herzegovina, is at $10.86 per gallon. Think of that next time you fill your tank.