Here’s a way to help bring down those high prices at the gasoline pump: the state, county and city could come off some of their taxes.
We’re paying more than 60 cents a gallon in various taxes in Los Angeles, which is among the highest in the country. That means every time we fill up a typical car, we’re paying $6 to $10 in taxes.
Now, I know that governments need their money, and gasoline taxes help offset the costs of roads, etc. But in California, it’s unfair. As gasoline prices go up, the tax on each gallon goes up, and tax income for governments goes up.
Why? Because in California, much of the gasoline tax is sales tax. A percentage. Even if consumers don’t buy one gallon more, they pay more tax as the price of gasoline rises.
Example: If a gas station operator could sell you a gallon of gasoline in Los Angeles for $2, he’d have to add 16.5 cents in sales taxes. But if he sells you the same gallon for $4, he’d have to add 33 cents. You pay twice the tax for the same amount of product.
As a rough calculation based on the amount of gasoline Californians buy, I figure the state alone could get close to $1 billion extra in tax revenue if the price of gasoline rises an average of $1 a gallon for a year. Remember, that’s extra revenue. And that’s just the state. The city and all the counties get in on this sales-tax bonanza, too. (The state’s sales tax on gasoline is 6.25 percent, and an additional 2 percent is claimed by county and city governments. Avalon and Inglewood tack on another half a percentage.)
To give you an example of what a nice deal this is for governments, the state’s tax collector, the Board of Equalization, reports that gasoline consumption actually went down in California last year. Normally, you’d assume the sales tax income went down. Nope. Gasoline sales tax revenue went up and by a large amount 13 percent. (It was an estimated $3.24 billion for the state.) That’s thanks to the distortions caused by the sales tax.
Normally, a sales tax is reasonably fair. You’d pay more sales tax to buy an $80,000 car than a $20,000 car, but you’ve made a choice to buy the more expensive car. Not so with gasoline. There is no choice. Rich and poor pay pretty much the same.
So my proposal is a simple one. The state and the local governments should roll back the sales taxes when gas prices get high.
The simple remedy is charge the sales tax only on, say, the first $2. Or they could phase in any reduction. For example, the state’s sales tax could drop to 3 percent on the amount above $2 and stop on any amount above $3. The county and cities could phase down their sales taxes accordingly.
This kind of a rollback should not result in a loss of tax income for governments. It should hold down the increase, the bonanza they enjoy when gasoline prices go up.
Best of all, it would be a show of good faith, a demonstration that they’re doing something to stop gouging us at the pump.
By the way, there are additional gasoline taxes. The state dings consumers 18 cents a gallon and the feds 18.4 cents a gallon, for example. But at least those are static per-gallon taxes that do not increase as the price increases. But in a cruel twist, the sales taxes are applied to those per-gallon taxes. And yes, that means you pay a tax on the tax.
Charles Crumpley is editor of the Business Journal. He can be reached at
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