A working group from
the state tax commission is expected to propose a $3 billion tax increase on
gasoline and diesel fuel, and the group said it expects the tax to increase
substantially each year.
Led by Fred Keeley (a member of the Commission on the 21st Century
Economy and treasurer of Santa Cruz County), the working group met August 25 at
the State Board of Equalization headquarters in Sacramento to discuss how an 18-cent
tax increase on each gallon of gasoline and diesel fuel would "encourage
energy conservation." A draft of the working group's proposed legislation,
to be submitted to the tax commission September 10, said the tax hike would
lead Californians to drive less or use more fuel-efficient vehicles.
The new tax on motor
vehicle fuel would provide funding for rebates to low-income taxpayers that
would offset the regressivity created by an increased
fuel tax burden.
The non-partisan Legislative
Analyst's Office raised a number of concerns. The analyst said that the
proposal, as originally written, would have violated the state constitution
because tax rebates to low-income taxpayers would have been funded by the State
Highway Users Account, which is prohibited by Article XIX of the constitution.
In response, the working group amended the proposal to deposit fuel taxes into
the state's general fund and then mandate that the general fund money be used
for rebates to low-income taxpayers.
At the meeting, legislative
staffers voiced a concern for what would happen to such rebate payments during
a budget crisis, but those concerns went unanswered.
While an 18-cent tax
on gasoline and diesel fuel would raise an estimated $3 billion in the first
year alone, the working group's proposal also allows for automatic rate
increases based on increases in the Consumer Price Index. In addition to adjusting
for CPI, the working group proposed that 7 cents be added to the per-gallon tax
each year. Based on these rates, California's new tax on gasoline and diesel
fuel would be 46 cents per gallon in five years, even before factoring in rate
increases tied to the CPI, and would cost motorists $7.6 billion in year five.
The new tax would be
in addition to the existing state gas tax of 18 cents per gallon, the federal
tax of 18.4 cents per gallon, and the sales tax that is assessed after gas
taxes are added to the price. California consumers also ultimately pay the
costs of the state's high taxes and regulatory costs on businesses that produce
and sell gasoline.
Revenues raised from
an increased tax would fund mass transit projects, local government transportation
projects, and general state and local infrastructure maintenance, members of
the working group said.
During the meeting,
there was no mention of how the rate might be adjusted downward if the CPI
declines, as it has so far in 2009. Also, revenue estimates did not consider
how increased rates would affect consumers' behavior, even though the stated purpose
of the proposal is to reduce consumption of gasoline and diesel fuel. If the
idea is implemented and it reduces consumption dramatically, as planned, infrastructure
and maintenance projects would lose a major source of their funding.
During the working
group, no one discussed how a $3 billion tax increase on fuel would affect the
state's business climate or the economy.
Cal-TaxReports, August 31, 2009
© 2009 California Taxpayers'
Association.
All Rights Reserved.