California drivers with the highest gas prices in the nation may soon get a tax break, free public transportation and discount cards of up to $800 to help pay for gas — but economists warn it will fuel inflation even further.
The proposal was unveiled on Wednesday by Gov. Gavin Newsom, as gas prices have continued to soar in recent weeks of inflation triggered by the pandemic and Russia’s invasion of Ukraine.
“This direct easing will address the issue we are all struggling to address which is gas prices,” Newsom said in a video posted to Twitter this week.
State governments across the country are debating what to do about it, with the most popular options being to cut fuel taxes or offer taxpayer rebates.
Last week, the governors of Maryland and Georgia signed laws to temporarily suspend gas taxes in their states, while on Wednesday Georgia also offered to refund $1.1 billion to taxpayers in a separate measure.
Average gas prices in California set a new state record Wednesday at $5.88 a gallon, more than $2 higher than a year ago, according to AAA.
California has the second highest gas tax in the country at 51 cents per gallon.
California Gov. Gavin Newsom proposed giving people $800 debit cards or bus fare as average gas prices hit a new state record on Wednesday at $5.88 a gallon.
California gas prices averaged a new state record Wednesday at $5.88 a gallon, more than $2 higher than a year ago, according to AAA.
California has the second highest gas tax in the country at 51 cents per gallon
The graph shows how the average California gas cost compares to the national cost
But the state’s Democratic leaders have been wary of suspending the gas tax because they fear the oil companies will not pass the savings on to drivers.
Instead, they want the money to be sent directly to taxpayers.
The governor’s office says the average California driver spends about $300 a year on gas taxes. Newsom’s idea is to give car owners $400 discount cards for up to two vehicles, for a total of $800.
The money will go to everyone who has a car registered in the country – including the wealthy, people who live in the country illegally, and even drivers who own cars that don’t use petrol.
For people without cars, Newsom wants the state to pay the bus or train fare for three months.
His proposal would give $750 million to transit and railroad agencies, which Newsom said would be enough to provide free rides for 3 million people a day.
About $1.1 billion will be paid to stop scheduled inflationary increases in diesel and fuel taxes this summer, and another $500 million will be paid for projects that promote cycling and walking.
“This direct easing will address the issue we are all struggling to address which is gas prices,” Newsom said in a video posted to Twitter this week.
“This package also focuses on protecting people from volatile gas prices, and promoting clean transportation,” Newsom said.
Rising fuel prices are a difficult political issue for Newsom, who is trying to wean the country off fossil fuels. He signed executive orders aimed at banning the sale of new gas-powered cars in the state by 2035 and halting all oil extraction by 2045.
He has proposed a total of $10 billion in funding over six years to boost production of zero-emission vehicles and build charging stations.
Higher gas prices usually inspire people to be more thoughtful about their car use by walking more or eliminating nonessential car trips, said Laura DeHaan, state director at Environment California, a nonprofit advocating for an end to fossil fuel use.
She said giving people money for fuel would encourage them to drive more.
The proposal was unveiled on Wednesday by Gov. Gavin Newsom, as gas prices have continued to soar in recent weeks from inflation triggered by the pandemic and Russia’s invasion of Ukraine.
The national average price for gas hit a record $4.43 on March 12
US inflation hit a 40-year high of 7.9% in February, in another grim sign for consumers.
Instead, she said, Newsom should spend $9 billion on programs aimed at getting people out of gas-guzzling cars.
“Just giving these rebates to anyone with a car in the state isn’t going to help us in the long run get away from the volatility that comes with our dependence on fossil fuels,” she said.
Newsom’s plan must be approved by the legislature, as Democrats control both the Assembly and the Senate. However, democratic leaders do not like the idea of giving money to the wealthy.
They have been discussing their rebate proposal, one that would give $200 in rebates to each taxpayer and their children with taxable income of less than $125,000 for single filers and $250,000 for joint filers. This means that a family of five will receive $1,000 while a single parent with two children will receive $600.
“The Senate is focused on ensuring that state funds target those who really need relief, and we look forward to working with Governor Newsom, House Speaker Rendón, and our legislative colleagues to develop a fast-track proposal for struggling Californians,” said the state senate. Pro Tempore Chair Tony Atkins, a San Diego Democrat.
Shown above is a chart of US crude oil imports, which excludes other petroleum products
The president noted during his speech that the United States produced more oil during his first year in office than it did during Donald Trump’s first year in 2017.
A spokesman for Democratic Caucus Chairman Anthony Rendon called Newsom’s idea “in line with the speaker’s goal of providing targeted financial relief to Californians who desperately need it” but stressed that the idea was “still in its early stages.”
Newsom’s plan is similar to a separate proposal put forward last week by more moderate Democrats in the state house that would give every taxpayer $400, regardless of income.
Assemblywoman Coty Petrie Norris, a Laguna Beach Democrat who supports that plan, on Wednesday urged the legislature and Newsom to move quickly.
“The contours of the governor’s proposal are a little different than what we proposed, but I would be very happy to endorse that,” she said.
The governor’s office said Newsom would be willing to negotiate with lawmakers about who gets access to the money, a process that could take some time to sort out.
Republicans favor a temporary suspension of the state’s gas tax, saying it’s the quickest way to provide the exemption.
Discounts like the one Newsom is proposing take time to deliver, as the governor’s office said people could see the money by July.
“People need relief now,” said Assembly Republican Leader James Gallagher. We now have, like, four different competing plans among the Democrats. These guys will be negotiating against themselves for weeks to months and who knows what we’ll get.
The last time inflation was 7%, it was a recent Reagan and the “Great Inflation” was coming to an end
The “Great Inflation” period from 1965 to 1982 was marked by a high inflation rate that exceeded 14 percent by 1980
The new data puts inflation at its highest level since 1982, when the period known as the “Great Inflation” came to a close.
Spurred on by the failure of monetary policy and two oil crises in 1973 and 1979, the period from 1965 to 1982 was marked by high inflation, which reached 14 percent by 1980.
Consumers suffered greatly from rising prices, and anger over the inflation crisis contributed to Ronald Reagan’s victory over incumbent President Jimmy Carter in 1980.
“Inflation is as violent as a thief, as terrifying as an armed robber, and as murderous as a murderer,” Reagan said during the campaign, dedicating the early years of his presidency to addressing the issue.
Reagan’s controversial economic policy had four main pillars: cutting government spending, lowering taxes, lowering regulations, and tightening the money supply by raising interest rates.
naysayers claimed at the time that Reagan’s policies would push prices higher, but history proved them wrong and inflation soon returned to sustainable levels.
