Research & Commentary: Gas Tax Hike in California Draws Substantial Criticism

Published December 15, 2017

California’s gasoline taxes have increased recently, resulting in significant backlash from Golden State drivers. Critics of the hike have started an effort to collect signatures for a new ballot initiative that would propose a new amendment to the state’s constitution repealing the levies and requiring voter approval for future gas tax hikes. The new ballot effort was launched soon after the gas tax increases went into effect on November 1.

Under the legislation signed by Gov. Jerry Brown (D), the state excise tax on gasoline was increased by 12 cents, from 29.7 cents per gallon to 41.7 cents per gallon. In addition to the increase on regular fuel, the state excise tax on diesel fuel was increased by 20 cents, from 16 cents per gallon to 36 cents per gallon, and the sales tax rate on diesel increased from 9 percent to 13. The effect on prices was immediate; on November 6, soon after the increased tax went into effect, California’s average price of gasoline reached $3.21 per gallon, 12 cents higher than the rate consumers face in Hawaii. California now has the highest average gasoline price in the nation, according to the fuel-tracking website

One of the main reasons California’s gas prices have skyrocketed is the state is one of only seven that also applies a sales tax to gasoline purchases, which is added on top of state and local motor-fuel taxes. According to Politifact, after the 12-cent tax hike is applied, California drivers will pay the second-highest gas tax in the United States, behind only Pennsylvania.

Any proposal that increases gasoline taxes ignores that the mounting evidence shows gasoline levies are a regressive form of taxation that have increasingly left transportation systems shortchanged. In recent years, the rise of fuel-efficient cars has decreased motor-fuel-tax coffers and disproportionately shifted the burden to low-income drivers, a group that typically owns older, less-fuel-efficient vehicles.

In addition to the fuel tax increase, the new law also includes several new “fees,” which are better described as taxes, including an annual vehicle fee ranging from $25 to $175, depending on the value of the car, and a $100 annual fee for electric car owners, which will first be applied in 2020. The California Department of Transportation predicts Californians should expect to pay about 10 additional dollars per month with the increased taxes and vehicle fees.

Wendell Cox and Ronald Utt argue gas taxes have a stronger effect on lower- and middle-income families than they do on the wealthy. The tax could also cause low-income families to drive fewer miles, which could reduce employment options. Americans for Prosperity estimates lower gas prices amount to approximately $100 in additional spendable income per month for an average family, which means the recent nationwide drop in gas prices could potentially lead to an additional $100 billion of economic growth

Requiring voter approval for any gas tax increases may be inconvenient to legislators, but it allows voters the chance to choose whether an increase is necessary or appropriate. It is not appropriate to add the burden of additional tax or fee increases on households that are already cash-strapped. A tax hike would raise prices on goods and services throughout the economy, not just on gasoline because virtually all consumer goods are transported using gasoline-powered transportation. Businesses will simply pass the added costs on to consumers.

The following documents provide additional information about how motor-fuel taxes are applied and their effect on the economy.

Alternatives to the Motor Fuel Tax
This report, prepared by the Center for Urban Studies at Portland State University and submitted to the Oregon Department of Transportation, evaluates potential alternatives to motor-fuel taxes. The report also identifies the economic and technological problems that must be addressed when designing alternative revenue sources.

Designing Alternatives to State Motor Fuel Taxes–motor-fuel-taxes?source=policybot
Writing in Transportation Quarterly, Anthony M. Rufolo and Robert L. Bertini consider the future of motor-fuel taxes as more fuel-efficient vehicles become available. They also report on the economic effects of road pricing as a substitute for fuel taxes.

Paying at the Pump: Gasoline Taxes in America 
Jonathan Williams argues gas taxes can be an effective means of funding transportation improvements. In many cases, however, governments exploit the taxes for political reasons, spending them on projects unrelated to roads and other transportation improvements. 

State Motor Fuel Taxes: November 2017
The American Petroleum Institute documents each state’s current motor-fuel taxes (both gasoline and diesel). 

Reconsider the Gas Tax: Paying for What You Get
Jeffrey Brown of the University of California–Los Angeles notes the gasoline tax was created as a user fee to raise money for roads, but many politicians and the general public seem to have lost sight of this purpose and lump it together with other unpopular taxes. The challenge for policymakers, Brown argues, is to restore the connection in the public’s mind between the tax and the roads it should provide.

Research & Commentary: Congestion Traffic Pricing–commentary-congestion-traffic-pricing?source=policybot
Congestion pricing, an alternative to gasoline taxes, uses market principles to address traffic congestion. Under congestion pricing, operators of a road charge a variable price based on congestion, allowing the operator to manage demand and limit congestion. Heartland Senior Policy Analyst Matthew Glans examines several proposals for implementing pricing systems to alleviate traffic congestion. 

Fuel Taxes, Tolls Pay for Only One-Third of Road Spending
Joseph Henchman of the Tax Foundation finds highway user taxes and fees made up just 32 percent of state and local spending on roads. Financing for the rest of the projects came out of general revenues, including federal aid.

Raising Gas Taxes Won’t Fix Our Bridges–wont-fix-our-bridges?source=policybot
In the aftermath of the I-35 bridge collapse in Minneapolis, Minnesota, Adrian Moore of the Reason Foundation argues increasing fuel taxes should not be the only response to state transportation funding problems. Moore wrote, “First we must examine how we spend transportation dollars now. Then we maximize the value out of those dollars. Finally, the last step is to address the need for additional revenue.”


Nothing in this Research & Commentary is intended to influence the passage of legislation, and it does not necessarily represent the views of The Heartland Institute. For further information on this and other topics, visit the Budget & Tax News website, The Heartland Institute’s website, and PolicyBot, Heartland’s free online research database.

The Heartland Institute can send an expert to your state to testify or brief your caucus; host an event in your state, or send you further information on a topic. Please don’t hesitate to contact us if we can be of assistance! If you have any questions or comments, contact John Nothdurft, Heartland’s director of government relations, at [email protected] or 312/377-4000.