During his annual State of the State address, Governor Gavin Newsom proposed a gas tax rebate to soften the blow of rapidly rising gas prices. Details of the program are still being debated, though Newsom commented that the rebate would likely take the form of direct payments to vehicle owners, including illegal immigrants.
Between January 2021 and Russia’s invasion of Ukraine in late February, California’s gasoline prices steadily surged from $3.10 to $4.52 per gallon, reflecting both higher consumption spurred by a post-pandemic recovery and a domestic and global slowdown in oil production and refining. By March 7, a tightening of oil supplies driven by imminent sanctions on Russia, the world’s second largest petroleum producer, drove California gasoline prices to a record $5.69 per gallon.
To assist Californians reeling from the cost of fuel, a burden disproportionately borne by the working class, Newsom proposed paying direct rebates in the “billions” of dollars to vehicle owners, including illegal immigrants.
Given how criminals collected “at least $20 billion” in unemployment benefits during the COVID-19 pandemic, the tax rebate plan’s lack of details on safeguards and its “more complicated” path to adoption compared to the tax holiday have left Republicans deeply concerned about the program’s viability. To address the rebate plan’s potential shortcomings, California Republicans have proposed suspending California’s gasoline tax, which represents 51 out of the 87 cents per gallon Californians pay in what are the highest gasoline fees and taxes in the nation.
“There’s a lot of programs that get announced by this governor, but not a lot of details,” said Assembly Republican Leader James Gallagher. “We have a proposal. We want to suspend the gasoline tax and save everybody in this state 51 cents a gallon, which would be a much-needed break for consumers.”
Responding to Republicans’ concerns, Newsom administration senior advisor Dee Dee Myers highlighted it would be up to gasoline stations to lower prices if there were a tax holiday, whereas Democrats’ rebate plan would send money “directly” to vehicle owners.
Curiously, neither of these headline proposals address the root cause of why California gasoline is so much more expensive than that in states with nearly as high taxes and fees. Illinois, for example, has the second highest gas taxes and fees in the nation, clocking in at 78 cents per gallon compared to California’s 87 cents. Yet its gas is only $4.57 per gallon, or over a dollar cheaper per gallon despite having a similar level of federal and state taxes and fees.
That’s because, unlike the rest of the country, California creates its own unique gas blend to reduce pollution and smog. Because gasoline must be special-made for California, only six refineries produce 96% of California’s gas — without having to compete with every refinery in the nation, these refineries are able to charge significantly higher rates.
To address the price inefficiencies produced by this state-created near-monopoly, Democrats are set to propose a state bill to require these six refineries to show how much of a surcharge they are adding. Next, Democrats intend to follow through with an “excess profits tax” on the refineries to “give [money] back to consumers.”
Though this taxation proposal appears unlikely to affect the market forces making California’s gasoline so expensive in the first place, Republicans are yet to put forward any such solution of their own, focusing on the gasoline tax holiday instead.