Frequently asked questions
What is this?
We're a coalition of environmental and progressive organizations fighting for a more stable climate and more socially beneficial uses of public funds. We're demanding that Governor Gavin Newsom cancel his proposed gas tax holiday, which would harm the environment and deny social programs over half a billion dollars this year alone.
How does California's gas tax work?
What's a gas tax holiday?
Following the passage of SB 1 in 2017, the gas tax has risen with inflation in July of each year. For example, it rose 1.2 percent from $0.505 in 2020-21 to $0.511 in 2021-22. Governor Newsom's budget proposed a gas tax holiday, which would pause the planned inflation adjustment, stating:
In an effort to potentially lower the price of gasoline and diesel fuel and provide some relief to consumers, the Budget proposes to forego the annual inflation adjustment to the per gallon fuel excise tax rate scheduled to occur on July 1, 2022.
The annual inflation adjustment will be resumed by 2023-24 with flexibility to delay the adjustment should economic conditions warrant it. This pause is expected to decrease fuel tax revenues by $523 million in 2022-23 based on an estimated 5.6-percent inflation rate.
That is, the holiday would keep the gas tax at 51.1 cents per gallon, rather than raising it to 54.0 cents per gallon. That 2.9 cents per gallon cuts the total price of gasoline by 0.6%, but it adds up to over half a billion dollars that could fund other programs.
What would happen to the gas tax in 2023 if the holiday is enacted?
It's unclear. The budget says "The annual inflation adjustment will be resumed by 2023-24 with flexibility to delay the adjustment should economic conditions warrant it." Resuming the inflation adjustment from its current value of 51.1 cents would mean a permanent cut to the gas tax, costing the state half a billion dollars each year for the foreseeable future. Newsom may instead intend to make up for the lost adjustment, which would likely require raising the gas tax by about 7 percent in 2023.
How is a gas tax holiday a fossil fuel subsidy?
According to the International Monetary Fund, the United States provided $660 billion in fossil fuel subsidies in 2020. But the US spends only about $20 billion per year on explicit tax breaks for fossil fuel companies. What explains the gap?
The vast majority of fossil fuel subsidies are in the form of, in the words of the IMF, charging fuel prices that are "below prices to reflect supply and environmental costs." Burning fossil fuels harms society by worsening climate change and harming our health with polluted air, but fossil fuel companies don't pay the cost of those harms. Fossil fuel subsidies are the difference between the cost of that damage and what we actually require fossil fuel companies to pay.
California produces about seven percent of U.S. carbon emissions. If our fossil fuel subsidies aligned with that share, it would mean over $40 billion in fossil fuel subsidies (our carbon pricing system reduces that, but not nearly to zero).
A new gas tax holiday would move fossil fuel prices further from the price that considers their social cost, adding to our billions in existing fossil fuel subsidies.
How does the gas tax protect the environment?
Transportation accounts for 40 percent of California's carbon emissions, and studies show that the gas tax reduces gasoline consumption, especially over the long term. By reducing the oil we burn, the gas tax in turn cleans our air and lowers the likelihood of catastrophic climate change.
How else does the gas tax help Californians?
Studies also find that the gas tax saves lives from crashes. In California's case, it also funds transportation projects. The gas tax holiday proposal includes backfilling transportation funding, so the trade-off is against other priorities in the budget, like social programs and climate funding.
How does the gas tax affect low-income Californians?
A 2009 study found that households in the top income decile consume almost ten times as much gasoline as households in the bottom decile. Richer households drive more and have larger, less fuel-efficient vehicles. Since electric vehicles are only about eight percent of California vehicle sales, and an even smaller share of cars on the road, these numbers probably haven't changed much in the past decade.
That study also finds that rebating gas tax revenues to everyone equally would benefit low-income households on a net basis. That means that redirecting the $523 million to programs that benefit Californians broadly or target low-income people will reduce poverty and inequality.
What could California do with $523 million?
A lot! We could create a $1,200 baby bonus, build over 1,000 below market rate homes, and much more. If the gas tax holiday were to reduce revenues moving forward, then those programs could be extended.
What would you want California to do with $523 million? Tweet your ideas at us!
I'm sold! How can I help?
Awesome! Here are a few things you can do:
Tell your state legislators that you oppose the gas tax holiday.
Follow us on social media @SaveTheGasTax and spread the word.
Write a letter to the editor at your local newspaper.
Email us if you'd like to help in other ways.
Who built this?
Max Ghenis, an economic policy researcher and activist in Oxnard, California, created this campaign as a volunteer project.