California Set For A 10-Cent Gas Tax Hike

When gas prices tumbled in late 2014 and early 2015, many states quietly considered, and some proposed, to take advantage of the "gas savings" and quietly institute a tax surcharge to fill up empty state coffers: after all it is much easier to implement price increases when the prevailing prices are lower than recent benchmark levels. So now that gas prices have resumed their climb in the footsteps of the price of crude oil, many assumed such "tax" proposals would quickly disappear, especially since all the speculation about a gas savings-driven spending surge by the US middle class turned out to be bogus.

It turns out such assumptions would be incorrect. According to the Hill, California is now officially considering increasing the amount of money drivers in their state will have to pay at the pump to help pay for transportation projects as federal road funding dries up. 

Legislation has been in introduced in the California state Senate that would increase the state’s approximately 47 cents-per-gallon gas tax by 10 cents.

Presenting California's latest tax:

The new California fuel levy, which would be the state's first increase since 1994, will be collected on top of an 18.4-cents-per-gallon federal gas tax that is charged to all drivers in the nation to fill the federal government’s transportation funding coffers. 

 

The American Petroleum Institute says the gas tax increase will bring the total amount of money that drivers in California are charged at the pump to more than 75 cents per gallon. 

The state is the latest to consider increasing its gas tax in recent years as federal transportation funding has dried up.

California is not the only state taking advantage of what most on Wall Street call merely a transitory dip in prices:

Transportation advocates in Washington have pointed to the willingness of states like California to raise their own gas tax as evidence that a national hike would be politically palatable this year.

 

Conservative groups in Washington have made clear that they would consider an increase in the federal fuel levy a tax hike, however.

A gas tax hike is being contemplated not only at the state level, but at the Federal as well: "Lawmakers in Congress are currently facing a July 31 deadline for the expiration of federal transportation funding, and they are struggling to come up with a way to pay for a long-term extension of the measure after passing a patch in May that last only two months."

Ironically, recent improvements in gas efficiency have meant bad news for the US department of transportation, whose tax revenue has been declining as less gas is being sold at the pump: "The national gas tax has been the traditional source of transportation funding since its inception in the 1930s. The tax has not been increased since 1993, however, and improvements in auto fuel efficiency have sapped its purchasing power. 

The federal government typically spends about $50 billion per year on transportation projects, but the gas tax only brings in approximately $34 billion annually at its current rate.

There is a reason for the saying: "if it moves, tax it", and with the US government in a constant underfunded state, it is likely only a matter of time before at least part of the gap with recent trendline gas prices is closed courtesy of Uncle Sam.

The irony, as California drivers are about to find out, is that as of this moment gas prices are just fractionally below where they were a year ago.

In fact, should oil prices rise by another $5 or so dollars, and the entire gap from a year ago will be filled. Said gap will be filled that much faster if the state Senate decides California drivers should be punished for not taking advantage of their "gas savings" when they could, and slaps them with a tax surcharge.

Which would be doubly ironic, because in the fight between OPEC and US shale, the biggest winners may end up none other than America's rapidly cash-burning states.