Yes, I know I am beating a dead horse. Whatever. The cost of fuel is a hot topic, widely covered and discussed, and often misinterpreted. I tend to babel on oil and gas prices and the tangential issues that influence these moving targets, and have a new piece of the puzzle today.

A common statement that you will hear some U.S. citizens say when the topic of high gas costs is broached is, “Europe still pays more than we do.” While this may be true in the absolute cost per gallon (3.8L) of gasoline, numbers can be used to deceive when not presented properly. As it turns out, the average cost of one gallon of gasoline in Europe is $8.70 as compared with the U.S. cost of $4.00 per gallon. This is a misleading figure because the components of the two different cost figures are drastically different.

In the U.S., about 11% of the final cost per gallon is from taxes. At the $4.00 per gallon average cost, this means that $0.44 is tax and $3.56 is the pretax cost per gallon. Europe’s prices, on the other hand, are comprised of 70% taxes and 30% pretax cost. Taxes on the $8.70 average per gallon cost are $6.09 and the pretax cost per gallon is $2.61. Wait, did you catch that? If you disregard taxes, Europeans pay $0.95 LESS than Americans for one gallon of gasoline.

How can it be that Europeans pay less than Americans for fuel (without factoring in taxes)? It helps to look at relationships and ratios in this instance. As it turns out, the $0.95 per gallon less that Europeans are paying is 26.7% less than the American cost, which is almost exactly the same percentage of depreciation the U.S. Dollar has experienced against the Euro over the past five years (27%). Coincidence? I doubt it.

The highly disproportionate taxation of gasoline gives me a much more positive view of the U.S. government. However, the low-tax approach may be very short-sighted. By taxing gasoline so heavily Europe has been able to better manage the demand and implement other transportation solutions utilizing the tax revenue. By keeping gasoline taxes low, the U.S. has created a situation where everyone is addicted to gasoline because it was such an affordable commodity.

Either way, this was just an exploratory look at what really makes up the differences in cost experienced at the pump between the U.S. and Europe. Basically, gasoline costs the same amount of money in both places when you take out taxes and adjust for the impact of currency conversions.

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