You’ve no doubt noticed that gasoline prices always end in nine-tenths of a cent, that is $4.5999 or $4.59 and 9/10. Why is that?
This odd pricing came from a 1932 law. During the Great Depression, a penny was worth a lot more than it is now. The average gallon of gas cost about 20 cents in 1930. When the Revenue Act of 1932 was passed, it allowed for the first federal gas tax. The tax rate of 1 cent per gallon was significant at the time.
Gas station owners, who paid the tax when buying fuel from suppliers, had three choices:
They could pay the tax that would damage their bottom line. That wasn’t the option the owners wanted.
2. They could raise prices by an entire cent. The public would resist something that would hike the price up a full five percent from what it was used to paying.
3. They could increase prices by less than a penny and pay the difference. Less than five percent sounded better.
The last option was less of a shock to motorists—who wouldn’t want it to be, but still made up a portion of the tax burden.
In the 1950s, President Dwight D. Eisenhower built up our interstate highway system. It was a national security measure, connecting one state to another … and in some cases, to several others. If an enemy invaded the U.S., he wanted a roadway system that could transport troops rapidly to any part of the country.
In that period, gasoline prices remained between 20 to 30 cents a gallon. Pricing gas to a fraction of a cent was also proved to be efficient because it made rates appear lower to motorists who saw them displayed on signs along highways. It was the same concept as charging $1.99 instead of $2 — consumers tend to focus on the leftmost digit of a price, making for an effective illusion even to savvy shoppers. But that last fraction of a penny made a significant difference. That last fraction added up to millions of dollars in revenue each month for gas retailers as a whole.
Roughly 90 years after the 1932 law was passed, pricing gas to nine-tenths of a cent is still common, but there’s nothing mandating that gas stations price their gallons this way. In fact, a 1985 law in Iowa banned the practice, though the law was repealed just a few years later.
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Frank
Frank Victoria is an award-winning author and screenwriter. He’s been an Amazon bestseller with his recent book,The Founders’ Plot, a political thriller for our times. He donates proceeds of his books to Tunnels to Towers and Fisher House, helping military veterans and first responders. His novella,The Ultimate Bet is available on his website and Amazon. Check out his new website:Frank M. Victoria
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