Trump’s Gas Tax Hike Could Make Californian Fuel Cheaper

No one likes to hear news about higher taxes. Californians got just that kind of news last year, when Governor Jerry Brown signed a 40-percent increase in the state gas tax into law. Drivers in the state now pay the most for gas of any of the States, and they are not happy about it.

Repeal efforts are now underway to undo the increased gas tax burden, and their initiators recently got unexpected support from none other than President Trump.

A legislative proposal for a 25-percent increase in the federal gas tax, supported by the White House, could inadvertently help the repeal efforts in California, CNBC’s Jeff Daniels wrote recently, quoting Jon Coupal, the president of the Howard Jarvis Taxpayers Association, which initiated the repeal petition.

"If there's a pending 25 cent additional tax on top of the tax we just paid, I think that would be a huge incentive for Californians to say, 'gee, we're being crushed here — we can't do anything about the federal tax but there's something we can certainly do about the state tax,'" he said.

Still, Californians are far from unanimous in their position on the state tax hike. A recent poll found that California residents are split almost evenly on the issue, with 47 percent in favor of a repeal and 48 percent against it. Supporters of the repeal are predominantly Republican, while the 25-percent federal tax hike supported by Trump would serve the interests of the Democrat governor of the Golden State.

Proponents of the higher gas tax—be it state or federal—argue that they are being used to pay for much-needed road repairs work in California. Sacramento is already fast-tracking such projects, The Los Angeles Times wrote earlier this month. These proponents are worried that if the repeal effort succeeds, much needed repair work will stop.

They are also worried that a repeal would cut access to federal funding of up to US$200 billion, which has been proposed by President Trump to complete infrastructure projects across the country. The proposal is contingent on each state being able to provide matching funds.

So, for almost half of Californians, the higher tax is viewed positively. For the other half, things look different. HJTA’s Coupal, for example, notes that California’s general fund had expanded by US$36 billion over a period of five years, yet no money from it has been used for road construction. The state, he says, has a bad track record of using public funds for road infrastructure.

But perhaps the time has come for this to change, as evidenced by the road project fast-tracking. Many believe the state of California’s roads leaves a lot to be desired, and additional state funds from the higher gas tax, estimated at around US$52.4 billion over the next decade, will help to fix this.

There is also another positive aspect to the higher gas taxes. They will make Californians greener, ultimately aiding efforts in renewable energy. How? Well, here’s an overview of the market impact of a higher federal gas tax by Ellen R. Wald. As soon as prices become uncomfortably high, people will start carpooling more, they will start buying electric cars, or they simply won’t drive as much. Result: lower emissions. What’s not to like about that?

By Irina Slav for Oilprice.com