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With gas prices soaring to near record levels, it makes sense that elected officials are scrambling for ways to provide relief to California motorists. As solutions go, there’s a menu of options that they could pick. From incentives to increase refining capacity to direct solutions at the pump, there are easy-to-implement ones and then there are really hard ones. The easiest option of all is suspending the gas tax, but experts say it won’t have any effect on gas prices.
For those curious, the highest average gas price in California according to AAA is $6.438 per gallon. That was achieved back in June 2022. As of late May, the average for regular gasoline in California is somewhere between $5.20 to $6.10 per gallon.
High gas prices have made their way into the gubernatorial election, prompting the issue to become a centerpiece discussion in recent debates. The debate at Pomona College in April highlighted the issue with several candidates campaigning on the idea that suspending the gas tax would provide relief.
Even President Trump kicked around the idea. Trump told CBS News in mid-May that “We’re going to take off the gas tax for a period of time, and when gas goes down, we’ll phase it back in.”
Both the California gubernatorial candidates and President Trump are talking about the same relief but through different taxes. The federal government assesses an 18.4 cent per gallon excise tax. California’s excise tax is 61.2 cents per gallon. Each tax funds transportation infrastructure programs totaling about $40 to $44 billion annually at the federal level and $8 to $10 billion for the state. These funds are the source for most transportation construction projects.
It should be noted that SB 1 from 2017 not only increased the gas tax rate (it hadn’t been increased since 1994), but it also gave the California Board of Equalization (later renamed to the California Department of Tax and Fee Administration, CDTFA) the discretionary authority to annually increase the gas tax based on inflation. That discretionary authority was stripped from the BOE when it was renamed and made the increase automatic based on a consumer price index (CPI) formula.
This year, the CDTFA estimates the CPI formula will result in a 2.2 cent per gallon increase. It’s set to increase on July 1, 2026. This new increase will annually result in about $300 million in state and local transportation infrastructure revenue.
It’s also a huge target for policymakers and aspiring California governors who want to eliminate the gas tax, or portions of it, in order to provide some relief at the pump. But suspending the 2.2 cent increase or even the entire 61.2 cents will not have the desired effect. Here’s why.
Gasoline is dependent on a massive global supply chain. From prospecting, extraction, crude oil transportation, refining, storage of refined product, wholesale, and retail distribution, there are many stages between the extraction of petroleum and the gasoline pump, so the variables in determining the price of gasoline are complex and subject to many different intermediaries. Each one of those stages provides an opportunity for any end-user savings to be absorbed. Unfortunately, that’s exactly what will happen if the gas tax is suspended.
This was proven in a March 2022 report from the American Road and Transportation Builders Association (ARTBA) titled “How Changes in State Gas Tax Rates Affect Prices Motorists Pay at the Pump.” The report covered the changes in price when both Georgia and New Jersey reduced their state’s gas taxes in order to provide some relief to motorists. Here are ARTBA’s case studies from both states:
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