I am starting a new post for us to talk about various aspects of energy taxation. DI asked a question in this month's T/A thread about the potential impact of Windfall Profits Taxes that are being proposed in the Congress. And by implications what we investors can & should do. Instead of answering him there, I have taken the liberty of starting a new thread because this subject is interesting by itself and we may have many different opinions and viewpoints. I thought it would be a good topic by itself for a thread.

As an introduction, let me say that world nations have always used energy as an easy way to tax their people. Energy taxes are much more in some countries (like the Eurozone) and less in others (like in the US). Many oil producing countries (such as OPEC countries) tax oil producers, but give huge price subsidies to consumers, which sounds absurd & upside down, especially when we are in an oil market that is structurally very tight.

For example, gasoline is priced under a $1/gallon in many Arab Gulf producing countries. No wonder their oil demand is going berserk, with gas guzzling SUVs driven by any citizen that can afford the initial investment. The US craze for SUVs is a big puzzle to me, but hopefully it will not be as much of a craze when gas is at $4 to $5/gallon (cross my fingers on that one).

What some people may not know is how big a slice goes to pay for all the Federal & state taxes. For each one dollar that a consumer pays at the pump, roughly 30% goes to pay for Federal & State govt taxes (direct taxes of 12 ccent/$ of gasoline or diesel plus highway taxes, Royalty taxes to Federal & State Govts & income taxes paid by companies on their profits). This is huge burden. Additionally, any Carbon taxes that will likely be levied in future will only add to this taxation. So, remember that for every one dollar spent, taxes constitute about a third of that take. This is BEFORE any of the new proposed taxes. That is a significant amount going to various govts.

If you think 30% taxes are bad, Eurozone taxes oil at even higher rates. I do not have good figures, but I know that the transportation fuels that we sell here are 150 to 200% higher priced in Europe. All of that "extra" price is because of taxes. Oil & oil products are traded around the world markets for the same prices (for a given quality) before taxes, then to sell in local markets, each country basically slaps on the added surcharge and makes the oil companies pick it up for them from the consumers. This way, the blame for high oil prices goes to the companies, not the govts. Thus, I would hazard to guess that for each Euro spent on diesel or gasoline in Europe, about 60-70% goes to pay taxes. Now, isn't that astounding and outrageous? I think so.

I think there are many other interesting angles on this one, but let me stop here in the opening post. I will come back to answer DI's original question a few posts later. All your thoughts welcome and appreciated .... Anil