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Solimar Research

California's Gas Tax Dilemma

Josh Stephens on
Oct 31, 2017
As I write this, a few hours before the first pitch of Game 6 and the first furtive steps of trick-or-treating, countless Californians are doubtless making mad dashes for one of the scariest places of all: the gas station. 

As of midnight, once the ghouls and goblins depart, California drivers will be paying an extra 12 cents per gallon. Permanently. 

This gas tax increase came about through Senate Bill 1, passed in April. Roughly $5 billion in annual proceeds will be distributed to counties to pay for all manner of transportation projects and maintenance. The increase — 43 percent higher than the current state gas tax, to 41.7 cents — was necessary because the current tax rate is 27 years old. Inflation left it in the dust, and the rise of more fuel-eficent cars since 1994 bit into revenues. 

While drivers will understandably gripe about added expense — and some are openly protesting — just as they’re probably ecstatic about saving that extra $1.20 or so by filling up now, it’s worth wondering what this form of taxation really means for mobility and development in California.

Just as Bill Fulton talks about the “fiscalization of land use,” we can also talk about the fiscalization of transportation. In this case, there are some weird incentives. 

One the one hand, the tax is a disincentive, albeit a minuscule one, to driving. On the other hand, the state now has 12 more reasons per gallon to want Californians to drive more — and, ideally, to do so in less-efficient cars. This raises, of course, the age-old debate over taxing gas versus taxing miles driven. If Tesla gets its way, this might be the last increase to the gas tax in state history, because the state will have no choice but to tax by distance. 

Back on the consumer’s side, the tax is one more reason why cities should support public transit, build more walkable and bike able places, and generally encourage people not to drive. Fortunately, the state has plenty of policies in place to support this sort of thing, most notably AB 32, SB 375, and the impending vehicle-miles traveled metrics. If these policies take cars off the road, it's hopefully all going to even out, since it will result in less wear-and-tear on streets and highways.

But cities don’t transform themselves overnight, like carriages into pumpkins. And that’s where this tax — like any other flat gas tax — gets really dicey. 

Naturally, people who drive most deserve to pay the most gas tax, right? Not exactly. 

Needless to say, California is suffering a housing crisis. And our urban areas are haunted by the ghosts of 20th-century approach to urban development. This combination means many of the millions of residents who live in outer suburbs and commute ridiculous distances aren’t doing so because they dig swimming pools, key parties, and neighbors who give out full-size candy bars on Halloween. They live there because they can’t afford to live anywhere else. They commute to jobs low-paying jobs in the city because all the low-paying jobs in the suburbs are taken. They are doing just well enough to own a car (or else they’d cram into truly unpleasant conditions in urban apartments) but not enough for much of anything else. 

This means, of course, that the gas tax isn’t just regressive but doubly regressive. Poor suburban Californians pay the temporal and emotional costs of driving and now they’re paying the financial cost of the gas tax. 

I’m not saying that we shouldn’t raise the gas tax, of course. You don’t need a Ph.D. in public finance to know that 27 years without so much as an adjustment for inflation makes no sense. But nor do you need a Ph.D. in urban planning to know that the relationship between living, working, and driving in California is out of whack — especially with housing costs what they are today. 

Scary, isn’t it?