One of the proposals from California Governor Gavin Newsom to deal with high gasoline prices is to provide rebates to residents who own cars at $400 per registered vehicle, capped at two per person. The proposal would give $400 debit cards to those who own vehicles, as well as millions of dollars to transportation agencies to offer free rides for three months. Gasoline prices in California are the nation’s highest, $5.917 a gallon recently and up more than $2 from a year ago. Part of the high gas price in California are high gasoline taxes. California drivers spend on average about $300 in gas taxes per year. Newsom’s plan also includes a pause, not a suspension, on the increase to the state’s gas tax set to take effect later this year. The proposal would cost $11 billion, with $9 billion to cover the direct payments. The plan also outlines $750 million for transit and rail agencies to offer free transit to residents for three months, and $500 million for projects that promote biking and walking throughout the state.
Other states have gone in a different direction than California in supplying relief to their residents regarding high gas prices. While California lawmakers are against removing the state’s sales tax—one of the highest in the nation—other state lawmakers in Virginia, Maryland, Connecticut, and Georgia have temporarily halted their state’s gas tax, and other states intend to follow their lead soon.
Not to be outdone, the Biden administration considered sending gas cards through the IRS, but Congressional legislators were not in favor. Instead, U.S. House Democrats have introduced three bills that would send Americans payments to offset high gas prices—similar to pandemic stimulus and child tax credit checks. Gasoline is averaging about $4.246 a gallon in the United States. It peaked on March 11 at $4.33 per gallon of regular gas, breaking the previous record of $4.11 from 2008.
House Democrat Proposals
On March 10, Representative Ro Khanna (D-Calif.) and U.S. Senator Sheldon Whitehouse (D-R.I.) introduced the Big Oil Windfall Profits Tax that would tax large oil companies and give that money to Americans as a quarterly payment. The tax would apply to oil companies that produce or import at least 300,000 barrels of oil per day. The tax would be 50 percent of the difference between the current price and pre-pandemic price per barrel of oil. At $120 per barrel of oil, the tax would raise approximately $45 billion per year. Single tax-filers would receive an estimated $240 per year, and joint filers would receive about $360. Eligible recipients would be single filers earning up to $75,000 or joint filers earning up to $150,000.
On March 16, Rep. Peter DeFazio (D-Ore.) introduced the Stop Gas Price Gouging Tax and Rebate Act that would tax oil companies and give that money to Americans as a monthly advance tax credit. Oil companies would pay a one-time 50 percent windfall profit tax on income that exceeds 110 percent of their pre-pandemic income. Single filers who earn up to $75,000 and joint filers who earn up to $150,000 would be eligible.
On March 17, Reps. Mike Thompson (D-Calif.), John Larson (D-Conn.) and Lauren Underwood (D-Ill.) introduced the Gas Rebate Act of 2022, which would give Americans an ‘energy rebate’ of $100 per month, plus $100 for each dependent, for each month the national gas price average exceeds $4 per gallon through 2022. Eligible recipients would be single filers earning up to $75,000 or joint filers earning up to $150,000. None of these proposals tie payments to energy usage or gasoline consumption.
Why the Rebates Make No Sense
The $400 rebate being proposed in California to offset the increase in gasoline prices is a one-time increase in income. But, as income increases, people are willing to spend more, thereby increasing demand for goods and services. When demand increases and supply does not, the imbalance increases prices. Those who receive the handout will be better off, but the rest of the world will have to pay the higher resulting prices for the increase in demand generated by the policy. In this case, the price change may actually be quite small, particularly if few states follow California’s lead, so the policy may not provide much benefit except to the politician who may garner more votes.
But there is a major inconsistency in California’s logic. If California expects to eliminate gasoline and diesel cars by 2035, high gasoline prices are a tool it should want to use to move forward since it will make residents purchase electric vehicles earlier than it would with low gas prices. So Newsom’s rebate is inconsistent with his goals. Newsom wants gasoline to cost a lot in 2035 so that no one uses it, but in 2022 it apparently costs too much so he creates a new handout program.
Further, someone has to pay for the cost of the rebates since there is no such thing as a free lunch. The funds being used to pay for the rebates were originally to be used elsewhere, which results in an opportunity cost. Since government funds come from taxes, in California’s case, residents who do not have cars are subsidizing those that do or if California needs to borrow money for this program, future taxpayers will be footing the bill plus the interest that would accrue.
Who or What Is the Real Culprit?
Like Newsom, President Biden wants to eliminate gasoline and diesel vehicles, but he also wants Democrats to remain in power so he needs to have voters believe he is helping them. But it is Biden’s anti-oil and gas policies that have resulted in high gasoline prices. He is simply following up on promises made during his campaign for president. His policies to cancel the permit on the Keystone XL pipeline, ban oil drilling in ANWR and the Naval Petroleum Reserve-Alaska, put a moratorium on new oil drilling on federal lands, elevate the social cost of carbon used in analyses, and direct banks to fund renewable energy instead of fossil fuel projects have put a damper on U.S. oil production. Those policies had the effect of increasing the cost of gasoline a $1 a gallon before the Russian invasion of Ukraine even began.
If President Biden and House Democrats want to lower gasoline prices, all they would have to do is reverse these Biden policies, rather than beg OPEC to produce more oil, or use ineffective policies like releasing oil from the Strategic Petroleum Reserve or instituting these latest rebate proposals.
President Biden wants Americans to believe that his policies are not responsible for high gas prices. As a result, he and his Democrat-led House of Representatives have several proposals to provide rebates to Americans as does Governor Newsom in California. These rebates have issues in that there is no free gasoline. Someone must pay either now or later. These lawmakers should fess up and tell the American public that they want high gas prices so that Americans will transition to electric vehicles—one of their goals.