Amid rising gas prices, Biden and California Democrats propose tax hikes on energy providers

High gasoline prices have prompted governors across the country, in red and blue states, to introduce bills that temporarily reduce gasoline taxes or delay planned increases. Maryland and Georgia were the first states to enact temporary gas tax cuts and more are likely to follow. In California, where the average price of gasoline is the highest in the nation, Gov. Gavin Newsom (D) has offered to send rebate checks to Californians to help cover increased fuel costs.

As an alternative to the rebates proposed by Governor Newsom, California Assemblyman Kevin Kiley (R) introduced Assembly Bill 1638, legislation to temporarily suspend the state gasoline tax. In a March 28 committee hearing on Assemblyman Kiley’s proposal, members of the Democratic majority gutted Kiley’s bill and replaced it with legislative language that would instead mandate a tax hike. gas supplier taxes. As home to what is already the highest marginal income tax rate in the country, the highest sales tax and one of the heaviest tax codes in the country, the decision by Democratic lawmakers to Sacramento’s response to rising gasoline prices with a new tax on fuel suppliers came as a shock to many.

“Let’s be clear about what’s going on right now,” Assemblyman Vincent Fong (right) said during the March 28 hearing on Kiley’s proposal. watching should be ashamed of this process.

“Only House Democrats would think you can bring gas prices down by raising the gas tax,” said GOP House Leader James Gallagher. “Today’s stunt at the Transportation Committee shows how far Democrats will go to delay and avoid giving Californians relief from high gas prices.” Assemblyman Alex Lee (D), who led efforts to change Kiley’s bill so it would result in a tax hike instead of a tax cut, said his proposal was driven by what Lee called “fossil fuel corporate greed”.

The average price of a gallon of regular gasoline in California hit $5.91 on March 30, nearly 40% above the national average. As California Assemblyman Fong and others have pointed out, taxes and regulations account for about 21% of California’s gas price, leaving policymakers in the Golden State room to apply pressure lower prices at the pump if they wish.

While Governor Newsom’s proposed rebates and the temporary gas tax cut proposed by state lawmakers would provide temporary relief, critics point out that it could exacerbate inflation and that permanent relief would be more effective. . “Additional one-time transfers put even more pressure on the system,” Remarks Jared Walczak, vice president of state projects at the Tax Foundation. “Even if taxpayers spend only a fraction of the money on additional consumption, this results in more pressures on the demand side when there are already supply shortages… Permanent reductions in rates or structural reforms create a higher return to labor and investment, and thus promote economic growth.”

If California lawmakers were interested in a long-term policy change that permanently lowered gas prices, they could achieve that result by repealing the state’s cap-and-trade program, which effectively imposes a tax on carbon that drives up the cost of gas and drives other forms of energy price inflation, such as higher utility bills.

“A recent LAO analysis calculated that gasoline producers pass this cost on to consumers under California’s cap-and-trade program, which requires companies to purchase permits and credits to account for of their greenhouse gas emissions,” Mercury News reported on March 9. noting that cap & trade adds about 23 cents per gallon to the cost of gas. Other taxes and regulations that make gas much more expensive in California compared to other states include the low carbon fuel program, underground storage fees, state gasoline tax, as well as local and state sales taxes.

Assemblyman Kiley pointed out that while he was willing to put his name on his bill, Democrats on the Transportation Committee declined to add their names as bill sponsors after amending AB 1638 to turn it into an increase in taxes on fuel suppliers. “So here’s the difference — we have two proposals here. I’m ready to put my name to my proposal,” Kiley Noted after Democrats amended his bill. “We are willing to take ownership of our proposal; you’re not even ready to put your name on yours.

“Have you ever wondered why more people are leaving our state today than ever before,” Kiley asked Democrats on the Transportation Committee after turning his proposed tax cut into a tax hike. “It was the state where anyone could go forward. Now this is the state that people are eager to leave. Today’s debates are a perfect example.

Nearly a dozen Democratic-led blue states recently rejected cap and trade because of its inflationary effect on gas prices

While it’s highly unlikely that the lawmakers who control the California legislature would have any interest in repealing their cap and trade program, if they did so somehow, they wouldn’t be the first Democratic-led state legislature to reject such a carbon pricing system. A proposal for a new regional cap and trade program made up of northeast and mid-Atlantic states, dubbed the Transportation & Climate Initiative (TCI), was scrapped in late 2021 due to a lack of support. . Of the dozen or so mostly Democratic-led states that were launched to join TCI, a years-long effort led by the Georgetown Climate Center, Massachusetts was the only state to fully commit to the program. and this was primarily because Massachusetts was the only state where it was determined that the governor could sign the state for TCI without legislative approval.

The main objection that TCI proponents could not overcome was that the program would drive up gasoline prices and would do so by design, imposing a regressive tax hike that would disproportionately hurt low-income households and means who can least afford the increased costs. . Moreover, even TCI proponents have acknowledged that transportation emissions are expected to decline even if the cap and trade system is never implemented.

“The Baker-Polito administration has always argued that the Commonwealth would only move forward with TCI if more states signed on, and since that doesn’t exist, the transport climate initiative is no longer the best solution for the Commonwealth’s transportation and environmental needs,” Governor Charlie Baker’s press secretary said in a statement released November 18, 2021, the day TCI officially died.

“TCI is a regressive gas tax scheme that would have hurt (the) middle class and the working poor the most,” Paul Craney, spokesman for the Massachusetts Fiscal Alliance, said of the governor’s decision. Baker to stop pushing for TCI. “It’s such wonderful news to see that Massachusetts families will not be forced to endure the economic hardship that TCI would have imposed on them.”

Governor Baker had the foresight to abandon a gasoline price inflation program in the face of rising gasoline prices and the highest headline inflation in four decades. The fact that TCI was unplugged due to rising gasoline prices last November, three months before Russia invaded Ukraine, helps explain why so few are buying the White House’s assertion that which Vladimir Putin is primarily responsible for high gasoline prices.

Permanent tax and regulatory relief, such as repealing California’s cap and trade program, is the best way for state policymakers to provide lasting relief from prices at the pump. Yet no matter what state officials do to reduce the cost of gas, they will have to contend with a White House that offers conflicting policies.

President Joe Biden’s fiscal year 2023 budget proposal, as a recent example, includes $45 billion in tax hikes on the oil and gas industry. The Biden administration admits this is designed to discourage investment in domestic production. Biden’s Treasury Department released a companion budget document that defends these energy tax increases by saying more investment in U.S. oil and gas production is “detrimental to the nation’s long-term energy security.” . In light of this, along with the recent revelation that the Biden administration will delay drilling leases in the Gulf of Mexico for a third straight year, it seems that whatever steps the state takes to reduce fuel prices, they will continue to face headwinds. contradictory and more consequential federal decisions on the macroeconomic level.