Gas Money: is it better to send checks or suspend a tax?

California is teeming with cash — the state has an estimated $21 billion budget surplus — and, separately, gasoline prices are on the rise.

These two facts combined are causing lawmakers to trip over themselves with spending proposals to help people whose costs are rising.

Last week, a cohort of Assembly members proposed giving every California taxpayer $400 to offset new higher prices for goods and especially gas. A few days later, the Los Angeles Times reported the details of another proposal, this one from the Democratic leaders of the Legislative Assembly: $200 for each taxpayer, plus $200 for each child for families earning up to $250,000, and a grant program with the same benefits for people who don’t file taxes.

Governor Gavin Newsom tossed another idea into the mix on Wednesday that, among other things, would give car and truck owners $400 per vehicle through debit cards, for a maximum of two vehicles per person. The governor’s proposal has no income cap, “in order to include all Californians who face higher prices due to the cost of oil,” the administration said in a statement.

The plans to send money directly to Californians follow Republican calls to temporarily suspend the state’s gasoline tax of about 51 cents per gallon in its entirety, and a proposal by the governor in January to suspend a planned 3-cent increase in the state gasoline tax. Both approaches to lowering the gasoline tax predate the war in Ukraine, which pushed gasoline prices even higher.

Lawmakers want to do something in response to rising gas prices. What remains to be negotiated is who gets how much and how exactly they get it.

A check that people can spend however they want, especially if it’s aimed at low- and middle-income Californians, makes sense, said Chris Hoene, executive director of the left-leaning California Budget and Policy Center, which advocates for assistance for low-income people. -income Californians. Rising gasoline prices end up making many products more expensive, he points out, and low-income people are feeling the effects of rising gasoline prices much more acutely.

On average, Californians spend about 4% of their income on gasoline for their cars and homes, according to a study by the Public Policy Institute of California. But Californians in the bottom fifth of income spend about 16% of their income on gasoline. In other words, when gas prices rise, people earning less feel the pressure on their budget for food, shelter and other essentials.

Families who don’t have a lot of flexibility in their family budget are feeling these price increases the most, said Sarah Bohn, an economist at the Institute.

Hoene thinks giving more money to people who have more cars rather than handing out money to low-income people doesn’t make sense. “I think it’s terrible,” he said of the governor’s proposal. “Millionaires and billionaires who don’t need the credit at all will get it because they have a record at the DMV.”

He also warned that sending checks to people with more money in the bank could exacerbate inflation. While lower-income households would likely use the cash to meet their basic needs, higher-income households that haven’t had to cut back in response to rising gas prices could use a check as a chance to splurge and order items from their Amazon wishlists. But he complimented another part of Newsom’s proposal, which would theoretically make public transit free for three months, as it would make it easier for people to use transit options that use less fossil fuels.

Sending money directly has proven to be an effective tool in helping people when economic circumstances change, most recently during the pandemic. Federal government stimulus checks kept 11.7 million Americans from falling into poverty during the pandemic, the Census Bureau found.

Sending checks and reducing gas tax have the same goal, but the two methods have different implications for reducing fossil fuel use, says UC Irvine economist David Neumark.

When gas prices are high, people try to use less, Neumark said. If the state sends checks, people who can’t change the amount of gas they use can use the money to offset higher prices at the pump, while others might try to drive less and use the money to cover other needs.

“We want the price of gas to be high to discourage people from using gas,” Neumark said. Reducing the gasoline tax to directly lower fuel prices, he said, would have the opposite effect: it would make it easier for people to decide to drive more.

“A lot of people don’t have the luxury of being able to say, Oh my God I guess I’ll quit driving.” said Assemblyman Kevin Kiley, a Republican from Granite Bay who introduced a bill that would scrap the gas tax for six months.

“If you have to drive a long distance to get to work or if you live in a rural area and there is no access to public transport, if you are a low-income person who does not can’t necessarily afford to go buy a Tesla tomorrow,” Kiley said, “there really isn’t a viable alternative in a lot of these situations.”

One of the benefits of the temporary gas tax cut is that it’s quick and easy, Kiley suggested. He criticized the complexity of Newsom’s proposal, saying it “seems to involve a lot of bureaucracy and it seems to preserve the role of government in determining where the funds go and who receives them.”

One of the downsides of the state gas tax cut is that it’s not clear exactly how much it would lower prices. The gas tax is paid by the suppliers, so they would have to pass on the savings to bring the price down. With the global oil market constrained by sanctions, it’s unclear how much of the tax cut consumers would see at the pumps.

The current spike in gas prices was caused by Russia’s invasion of Ukraine and subsequent sanctions. That situation doesn’t necessarily warrant a full-scale fix by California lawmakers, Neumark said. Giving everyone checks could score political points, he said, but middle- and upper-income Californians can handle higher gas costs.

“Bad things are happening in the world and someone has to help pay for that,” Neumark said. “Other people pay with their lives, don’t they? We pay a dollar more for gasoline.

What questions do you have about Southern California?

Julio V. Miller