Despite Sunday Late Night Tax Rebate Deal, Gas Tax Still Going Up

Closeup refuel gasoline in gas-station

Gov. Gavin Newsom and the Legislature’s Democratic leaders announced Sunday that they had finally reached agreement on a tax rebate plan.  How to give Californians relief from high gas prices and rising inflation had been a key sticking point holding up the budget’s enactment.

The unusual release of the plan – announced by Newsom via press release late on a summer Sunday evening – shows that Newsom clearly believe lawmakers got the better of him for a change.

The plan, according to the Assembly Budget Committee floor report, includes $9.5 billion in rebates based on income levels.  Taxpayers earning up to $250,000 ($500,000 for joint filers) will receive at least $200 per tax filer, up to $1,050 for joint filers with dependents earning less than $150,000.  This is much closer to the Legislature’s proposal than Newsom’s plan to provide rebates to car owners per car.

Don’t count on cashing your rebate check just yet – you won’t get any money for several months.  The San Francisco Chronicle reports “the state would send people the money through direct deposits and debit cards beginning in October (and) the states Franchise Tax Board estimates all the money would be sent out by early next year.”

Even though Californians will get a tax rebate of some of their money at some point in the future, “the plan does not include a broad suspension of the estate’s gas tax, which is set to increase by three cents on July” according to Calmatters.  However, the budget deal includes a partial suspension of the diesel sales tax, saving diesel truck drivers about 23 cents per gallon.

In their joint statement, Newsom, Senate President Pro Tem Toni Atkins and Assembly Speaker Anthony Rendon heralds the fact that the budget “will offer tax refunds to millions of working Californians (and) twenty-three million Californians will benefit from direct payments of up to $1,050.”

But if you think about it, California’s $97.5 billion budget surplus really reflects the amount of money that Californians overpaid state government this year in taxes.  Our elected officials in Sacramento are giving the people back a few budget crumbs in the form a rebate – less than 10 percent of the surplus.

And they didn’t really have a choice.  Sacramento was forced to give out billions in tax rebates under the Gann Limit.  As I have written previously, the voter-approved state spending limit cast a shadow over this year’s budget debate and budgets in the coming years.  The nonpartisan Legislative Analyst’s Office even termed the Governor’s May Revise as “barely balanced” and urged lawmakers to do more to get ahead of the problem.

To comply, the budget includes some of the changes recommended by the Legislative Analyst and excludes the tax rebate and new spending for infrastructure and emergency spending from the Gann Limit.  The Assembly Budget Committee estimates that the final budget will be $11 billion under the limit in the 2022-23 budget year.

Before the deal was reached, Newsom aide Anthony York said publicly that “the Governor remains opposed to massive ongoing spending.”  Score another win for the Legislature, but not for fiscal responsibility.  The budget includes major new ongoing spending including funding for Medi-Cal for all undocumented immigrants living in California, regardless of age.  The long sought-after priority for Sacramento liberals, which will cover approximately 700,000 people, will cost $2.6 billion annually once fully implemented according to the Sacramento Bee.

Now that a deal has been reached on the record $300 billion spending plan, lawmakers and the Governor are praying that it will hold up.  With the stock market in bear territory and record inflation, the U.S. is on the verge of a recession.  Declining capital gains tax revenue is Kryptonite for the state budget, which could easily go from a nearly $100 billion surplus to a multi-billion dollar deficit virtually overnight thanks to the volatility of the state’s tax system.

How the economy fares in the coming months will ultimately determine whether we need every penny of that $37 billion in state budget reserves next year – and whether the massive spending approved by lawmakers this year will fall victim to economic reality.

Tim Anaya is the Pacific Research Institute’s senior director of communications and the Sacramento office.

Nothing contained in this blog is to be construed as necessarily reflecting the views of the Pacific Research Institute or as an attempt to thwart or aid the passage of any legislation.

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