We Need A Prop 13-Style Ballot Initiative For Gasoline And Diesel Taxes

Kerry Jackson
Kerry Jackson is a Fellow at the California Center for Reform at the Pacific Research Institute.

Attorney General Kamala Harris has reportedly opened an investigation of oil refiners over gasoline prices. But if she truly wants to know why gasoline and diesel cost so much in California, she’ll be grilling the wrong suspects. She should instead investigate the general assembly.

Politicians love to conduct oil industry inquisitions. They know that to some voters, it makes them look like bold warriors fighting on behalf working families. Whenever there’s a spike in gasoline prices, government probes spike, too. Oil companies are characterized as “greedy” multinational corporations “conspiring” and “colluding” to “gouge” customers just because they can. What these faceless, soulless firms are doing is an outrage that must be countered by government power.

Inevitably, these investigations find no villains and prices, primarily determined by supply and demand, soon fall off their highs. In some cases, the drop is precipitous. Do oil companies then garner praise from politicians and bureaucrats for declining prices? Never. It’s as if nothing has happened. Media are uninterested and elected officials look for the next bogeyman. Playing to the electorate is a never-ending task.

But as soon as prices rise again, the cycle cranks up one more time.

Gasoline prices are nowhere near their highs in California. Regular grade was about $2.91 a gallon over the July 4 weekend. This is well below the peaks of 2012 and 2008, when prices surged to about $4.60 a gallon. But Harris, who is running for a U.S. Senate seat this fall, needs a political boost. So she has, according to multiple media sources, subpoenaed oil refiners, though her office will not confirm the probe.

The alleged problem is the gap between gasoline prices in California and the rest of the country. The Los Angeles Times reported in late June that California prices have “been as much as $1.50 higher than the rest of the nation since last summer.” The Times cites the Exxon Mobil refinery explosion in Torrance in February of last year and its subsequent shutdown as a reason for climbing prices. Also skewing prices upward are federal regulations that constrain supply by mandating boutique fuel blends in some parts of the state.

But these are only partial explanations for the state’s high gasoline prices. For a fuller account, we need to know what Sacramento’s role is.

California has some of the steepest fuel taxes in the country. According the American Petroleum Institute, total state taxes and fees on a gallon of gasoline in the Golden State is 40.43 cents. It is 33.08 cents for a gallon of diesel. Last year, the Tax Foundation found that only three other states – Pennsylvania, New York and Hawaii – had higher taxes and fees on retail gasoline sales. Bankrate.com figures that there’s a 58.83-cent tax on each gallon of gasoline sold in California, sixth in the nation.

But these figures might be merely starting points. Stephen Frank of Watchdog Arena reported a year ago that California’s gasoline taxes are “higher than advertised.” The real rate, he says, is between 79 and 91 cents a gallon due to the state tax, local sales taxes, which vary, and a state global warming cap-and-trade fee that starts at 10 cents per gallon – levied by unelected functionaries at the California Air Resources Board – imposed on retailers who pass it on to customers.

Effective July 1, the state’s excise tax on gasoline was decreased by the Board of Equalization by 2.2 cents per gallon. This was done to comply with state law that says consumers can’t be required to pay more than what they paid in 2010 under a previous tax regime. BOE member George Runner said this gave Californians “reason to celebrate.” But if anyone did, it didn’t last long. That’s really no cut at all.

California consumers deserve a far more sizeable fuel-tax cut. The General Assembly could ease most of the burden but, given the way lawmakers have turned the state into a tax pit, it’s hard to envision a majority voting for relief. After all, the more tax revenue pouring into Sacramento, the more power legislators have. If Harris were to complete an honest investigation into high gasoline prices, this is exactly what she’d find. High taxes cause high fuel prices, and that’s the way most of our lawmakers like it.

So what about a Prop 13-style ballot initiative for gasoline and diesel taxes? Put the issue in the hands of the taxed, not those who do the taxing. That would end the real conspiracy, the one in Sacramento.

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