Californians are well aware that they pay among the highest gasoline prices in the country, an average of $1.83 per gallon, and much higher in some areas, notably the Bay Area. When they gas up their cars, however, most motorists are unaware of the role federal, state, and local taxes have on prices.

Driving to work in California is hardly a luxury, but the federal and state governments apparently disagree. The first tax levied is an 18.4 cent per gallon federal excise tax. An excise tax is a charge on the production of non-essential goods. The state imposes a second excise fee of 18 cents per gallon. Lately there’s been debate in Washington over reducing the federal excise tax. But California drivers would hardly feel any fiscal relief from reform at the national level.

Under current state law, if legislators decide to cut the federal tax below nine cents per gallon and if subsequent revenues fall, the California excise tax can be increased to make up the difference. For example, if the federal rate was cut by 15 cents (bringing it down to 3.4 cents a gallon), the state rate could increase by 5.6 cents per gallon (on top of the current 18 cent state levy), for a combined federal and state rate of 27 cents. This represents a savings of only 7.4 cents over the current 36.4-cent excise levy.

Not only would California drivers be cheated out of a larger tax break, the federal reduction would actually fill the state treasury with more tax money—a sweet deal at the expense of the taxpayers.

In addition to both federal and state excise fees, California slaps on six-percent state, 1.25 percent local, and special sales taxes, which vary by district. On average, Californians are now paying 13 cents per gallon in additional taxes. As it stands, these levies are a form of double taxation.

Not only are the sales taxes levied on gasoline, they are imposed on both federal and state excise taxes. They are essentially taxing taxes. One bill introduced in the state legislature last January would exempt gasoline, as well as federal and state excise taxes, from these additional state, local, and special district sales taxes. In doing so, lawmakers assert they would avoid unfair double-taxation and relieve Californians of heavy gas prices. While this is a step in the right direction, more can be done.

Lawmakers should move to revoke the 18 cent per gallon state excise fuel tax as well. Cutting these taxes would have a positive impact on the state’s economic growth. The Pacific Research Institute’s California State Tax Analysis Modeling Project (Cal-STAMP) estimates that repealing the six percent state sales tax and the 18 cent state excise tax on fuel would create more than half a million new, permanent jobs in California by next year. It would also return approximately $3.8 billion to the pockets of California taxpayers.

Tax cuts are important to economic growth. Rather than sending $3.8 billion into government coffers, the money would be used for more productive purposes. Government spending is directed by politicians who think they know what consumers want and who control how taxpayer money will be spent. Meanwhile, private sector spending is driven by consumers who know their own needs. By lowering taxes, individuals would have more money and greater choice in determining how their earnings will be spent. Tax cuts would stimulate private spending and investment in capital such as machinery, equipment, buildings, and job training. As private sector spending goes up, a rising demand for more goods and service would spur California companies to increase production and create more jobs.

With the strong economy, record-breaking surpluses, and already high gas prices, some states, most notably Illinois, have implemented tax cuts to alleviate the financial weight of high gas prices. Today drivers in Illinois pay an average of $1.55 at the pump.

Californians, who depend on their cars more than residents of most states, could enjoy the same relief. By eliminating heavy-handed gas fees, lawmakers could stimulate economic growth and lessen the tax burden. This would make an easier commute to the workplace for millions of Californians.

*Alejandra Arguello is a fiscal policy analyst at the Pacific Research Institute's Center for Enterprise and Opportunity.