State Senators are considering legislation to increase California’s special taxes on gasoline at the pump. Current low gas prices make the idea of a gas tax hike seem more acceptable to Sacramento’s politicians, expecting the impact of the tax will not be felt as much by taxpayers as oil prices in general spiral downward. But for California’s growing poverty class of 24% of the state, the largest in the nation, any hike in the gas tax would be an economic tragedy.
Known as “consumption taxes”, California’s gas taxes are already among the highest in the nation. In 2013, the state Board of Equalization, which has some administrative powers over gasoline at the pump, raised the state excise portion of the tax by 9%, to 39.5 cents a gallon, only to jerk more modestly to adjust the rate downward last year to 36 cents a gallon. Other sales taxes and fees raise the overall gas tax in California another 14 cents, adding at least 50 cents per gallon in state taxation when you fill up your tank. Added on top of that are Federal taxes as well. Gasoline is already a very heavily taxed retail commodity in California.
With all the chatter from Sacramento about “income inequality” you’d think there might also be some reasoning about real “tax inequality” as well. California is notorious for soaking the rich in its tax system, which according to Sacramento Bee columnist Dan Walters is too heavily loaded on burdening the wealthy. But now that gas prices are temporarily lower (industry executives expect them to get back to $5 a gallon by late 2016) tax-and-spend Democrats are zeroing in on what they think would be an easy mark for a tax hike. Yet their actions would not continue to soak the rich, rather, they would soak the poor.
Consumption taxes focus not on the relative prosperity of the taxpayer, instead they focus on the goods and services the taxpayer consumes. These taxes take the form of sales taxes, excise taxes, and tariffs. A poor person pays the same tax for a good or service that a rich person pays. The difference is, a poor person has a lot less disposable income available to pay the tax, and for this reason, the tax has much more significant impact on them. The poverty line in California when factoring in cost of living, is around $24,000 for a family of four. Almost a quarter of the state lives at the poverty line or below. These citizens are living in a state that continues to have a faulty economy and is dogged by pockets of high unemployment. In a fair society, they should also not have to pay higher taxes even when the rich are unfairly soaked.
Our state tax system should definitely not add burdens on the poor. Raising the gas tax in California might raise state tax revenues, intended to do good for all, but they would do exactly the opposite of what advocates for the poor want. It would make the poor, poorer.
Joseph Bankman, a Professor of Law and Economics at Stanford University, who has studied California’s tax system, has stated studies show that poor people in California’s Central Valley pay as much as 10% of their disposable income on transportation – a needed activity in order to get and maintain a job. And unemployment and poverty in the Central Valley are among the worst in the state. Raising the already astronomical gas tax will harm these poorer citizens the most, and it will mean less advantage to them in their disposable income as a result of the recent drop in oil prices, it will cut more deeply into their pockets, and when gas prices eventually rise again late next year, it will do nothing more than push these citizens even deeper into the remarkable new widespread poverty that is the legacy of California’s current political leadership in Sacramento.