I just came across a survey on FoxNews.com that says gasoline prices easily tops the list of economic woes facing families in the U.S. when people were asked how changes in the economy have affected peoples lives. (see the report here)

It shows that about 44% of the survey participants said paying for gasoline is a “serious problem” for them. This response was the most frequently cited economic concern across all income levels. It goes on to say that for households with income levels more than $75k per year the number was over 25% and for households with incomes less than $30k per year the number rose to 63%. I hope Washington is taking notice of this and what the American people are saying.

This survey shows good paying jobs was ranked at 29% and affordable health care came in at 28%, followed by paying the rent or mortgage at 19%.

Nearly 30% of the participants said they have put off or postponed needed health care services and almost a quarter said they skipped a treatment or recommended test. Nearly the same numbers have skipped getting a prescription filled. This is a sad state of affairs when the numbers are looking this way for the economic perceptions.

This survey of 2,003 adults was collected April 3 – 13, 2008 on behalf of the Kaiser Family Foundation, which conducts health research. The margin of error on this survey is plus or minus 3%.

This brings us to the question what is our government doing about the situation? The House of Representatives and the U.S. Senate have passed differing versions of an Energy Bill. This bill needs to go to a conference committee to iron out the differences, but we may be lucky that they are refusing to do meet over this because of the problems this bill would create.

The intent of this bill is to reduce and ultimately reverse the growth of carbon emissions from many sources, including gasoline-powered vehicles. This is done through provisions requiring higher Corporate Average Fuel Economy (CAFE) standards for cars and more biofuel content in retail gasoline. All of the mandates and programs are to be paid for through a series of tax increases, most of which fall on the producers of gasoline. The results of these mandates and programs will increase prices at the pump even more.

The requirement to increase the biofuel content in retail gasoline reduces the nation’s flexibility in the gasoline supply and adds to the production costs, primarily from the higher costs of producing ethanol and cellulosic alcohol.

The CAFE standards are included with the intent that if the nation’s automobile and truck fleet achieves the higher fuel efficiency targets demand for gasoline will fall, exerting a downward pressure on gas prices. However the pressure will only offset about 25% of the increased costs for the biofuel requirement contained in the bill. Some argue that the effect on prices will be greater but this fuel efficiency idea has been around for decades and the historical data only supports a modest effect on pricing. This historical evidence doesn’t include any upward pressures from mandates such as biofuel. Increasing the CAFE standards also requires reducing the size of vehicles, which reduces safety of the American people.

One of the most likely initiatives in the energy bill is the Price Controls contained in it. There is no environmental focus in this initiative and the House has adopted a stand-alone legislation that the Senate is considering. This program is to prevent “price gouging” or especially high prices well in excess of “market prices”. Many times over the past 100 years this well-meaning effort has been used with the unintended consequences of reduced supply and even higher prices through standard supply/demand economics. I don’t know how many of you remember the price controls of the 70’s in response to the Arab Oil Embargo. Many say this was the start of the “stagflation” that hit this country through much of that decade. We don’t want a repeat of this.

Then we get to the increased taxes. The bill has a number of changes to tax law that will affect the price of gasoline. These increases are (1) increased taxation of income derived from foreign oil and gas production; (2) Reduced deduction for domestically produced oil and natural gas production; and (3) changes in the amortization period for oil and gas exploration equipment, which raises oil company tax payments. The loss of tax credits is particularly dangerous to consumers ($13 – $19 billion over 10 years) because companies tend to recoup tax increases in the form of higher retail prices. This doesn’t even count the 51¢ per gallon subsidies for ethanol.

The tables below shows the estimated price effects of H.R. 6 on regular unleaded gasoline. The state averages only looks at our neighboring states..

Survey - Gas Prices Top Economic Fears.pdf    Paying More at the Pump 4-23-2008.pdf

More to follow…