California Set For Massive New Gas Tax Hike


California Set For Massive New Gas Tax Hike

If you think low gas prices will mean lower prices to you at the pump all summer long, think again. Taking advantage of seasonally low gas prices, California is now considering increasing the amount of money paid at the pump for gasoline in order to fund transportation projects as federal road funding dries up.

Legislation was introduced on Wednesday, in the California state Senate, to increase the state’s approximately 47 cents-per-gallon gas tax by 10 cents or 21 percent.

The new California fuel levy, which would bring the total state tax to 57 cents per gallong, will be collected on top of an 18.4 cents per gallon federal gas. That means over 75 cents per gallon will go to the government.

The tax seeks to take advantage of low prices, effectively passing the savings on gas prices to the government to waste rather than consumers. Yet most on Wall Street believe the low gas prices are merely a transitory dip, and that prices will rise back to normal levels towards the end of the summer.

With an already struggling economy, the increased taxes will put a damper on economic growth when prices rise back up to their natural levels.

States aren't the only ones looking to capitalize on the short term price movements, with a gas tax hike being contemplated at the Federal as well. "Lawmakers in Congress are currently facing a July 31 deadline for the expiration of federal transportation funding, and they are struggling to come up with a way to pay for a long-term extension of the measure after passing a patch in May that last only two months."

The latest cash grabs are thanks to recent improvements in gas efficiency, as less gas sold at the pump means less tax revenue for the Department of Transportation. "The national gas tax has been the traditional source of transportation funding since its inception in the 1930s. The tax has not been increased since 1993, however, and improvements in auto fuel efficiency have sapped its purchasing power." the department said in a statement.

Given gas prices are right around where they were last year, state and federal politicians will have to come up with answers when it bounces back up to normal and the economy stalls thanks to consumers spending more money on gas taxes than productive purchases.

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