MADISON, Wis. -- A new report by the Wisconsin Policy Institute (WPI) recommends that the state legislature and governor repeal entirely the minimum markup law as applied to motor fuel. At a minimum, the legislature should act to cap the per-gallon markup at 21 cents per gallon, where it stood 12 months ago, said the report, " Wisconsin's Minimum Markup Law: Mandated Pain at the Pump."
Wisconsin is currently one of 18 states which have below-cost laws that apply to motor fuel. Wisconsin's minimum markup law generally requires a markup of 9.18% on gasoline sold in the state to prevent businesses [image-nocss] from undercutting the prices of their competitors. Yet the Depression-era law—the Wisconsin Unfair Sales Act was enacted on June 3, 1939—actually prevents consumers from getting a good deal on gasoline, said WPI.
This report finds the following:
Wisconsin's minimum markup law adds $990 million to the annual price paid by consumers, between $267 and $278 million of which is beyond what a normal profit margin would yield. Wisconsin motorists currently pay 30.2 cents per gallon as a result of the minimum markup law. As a result, minimum markup has almost eclipsed the state's 32.9-cent auto fuel tax, which is currently 9th highest in the nation. As the wholesale price of gas grows, so does the amount per gallon motorists have to pay as a result of minimum markup. In January of 1998, when the wholesale price of gas was 64 cents per gallon, the minimum markup stood at 5.9 cents per gallon. In July of 2008, the wholesale price of gas stands at $3.29 per gallon, with the per-gallon minimum markup amount at 30.2 cents – an increase of 400% in 10 years. In the past year, the amount the minimum markup law adds to a gallon of gas has increased 44%, from 21 cents per gallon in July of 2007 to 30.2 cents per gallon in June of 2008."During the hot summer months, many motorists are looking to the government to alleviate the distress wrought by high gas prices. Yet, in many cases, governments themselves are contributing to the pain at the pump," WPI said.
The report concluded, "Minimum markup is one of the most overt examples of select businesses reaping the benefits of government-mandated profits at the expense of the consumer. In the times of $4 gas, it makes even less sense, as low-income individuals are subject to a regressive tax when purchasing fuel. Aside from the additional cost of fuel to the consumer, high gas prices seep into the price of all goods and services transported throughout the state. When it costs more to truck candy bars to a grocery store, that price will be reflected in the cost of those candy bars. As a result, Wisconsin consumers end up not only paying higher prices at the pump, but they end up paying ancillary costs hidden within goods and services they need."
It added, "The Legislature should repeal the state 's minimum markup of auto fuel to aid consumers. Rather than government continuing to skew the market and funnel profits to gas stations, they can provide citizens with instant relief – and it won 't cost the state treasury a dime. If the Legislature refuses to act on a full repeal of minimum markup, there are incremental steps that can be taken. For instance, the Legislature can control the rapid growth of the per-gallon markup by considering capping the markup to 2007 levels, which would limit the minimum markup to 21 cents per gallon."
Supporters of the law argue that the report is flawed because it assumes gas stations always charge 9.18% above wholesale, said a report by the Milwaukee Journal Sentinel. The law allows them to mark gasoline up less than that to meet competitors' prices.
Matt Hauser, president of the Wisconsin Petroleum Marketers & Convenience Store Association, said retailers are lucky to make 2 or 3 cents a gallon. Credit card fees can eat up as much as 12 cents a gallon. He said the law saves drivers tens of millions of dollars a year because it prevents large businesses from driving small companies out of business by temporarily selling gas at a loss and then raising prices. "The act serves as a great way to show when predatory pricing occurs," he said.
U.S. Magistrate Judge William Callahan last year held that the law is unconstitutional, but his ruling did not strike down the law because the state was not a party to the case, in which one station accused another of predatory pricing.
State Reps. Bill Kramer (R) and Leah Vukmir (R) introduced a bill this session to repeal the minimum markup law and replace it with a new law that would have limited the legislature's ability to set prices. The bill did not get a committee hearing and died at the end of the session, said the report. The pair this week asked Gov. Jim Doyle (D) to call a special session of the legislature to repeal the law. Doyle has long opposed the law and called for its repeal, but despite efforts by pockets of lawmakers, the legislature has not moved to get rid of it.
Doyle said he appreciates bipartisan support for a repeal, but without legislative leaders pledging it would pass, he is not planning to call a special session. "If the legislative leaders came and said they actually want this called and that they have votes to get it passed, I'd be glad to do it, but I'm not going to do it to have nothing happen," Doyle said.
State Senate Majority Leader Russ Decker (D) and Assembly Speaker Mike Huebsch (R) in the past have supported the law.
Doyle said he thought repealing the law would help "on the margins" but that more would need to be done to lower gasoline prices. "These gas price problems are all over the United States—it's not like Wisconsin is some island," Doyle said.
State Rep. Jeff Stone (R) suggested lawmakers could replace the law with one that requires larger companies to maintain uniform prices across the state or regions of the state, said the report. That would prevent them from going into small markets with an eye toward driving mom-and-pop shops out of business. "Gasoline…is not truly a competitive market," he said. "There's not that many players. The potential for large players to dominate is extremely strong."
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