State proposes 21 percent gas tax cut?

From the "I'll believe it when I see it" department

(San Diego Union Tribune)  -  San Diegans enjoying relief at the pump these days can expect a little more this summer, this time thanks to the state of California.

The Board of Equalization released a proposal on Friday to reduce the per-gallon tax Californians pay on regular gas by 7.5 cents per gallon, a 21 percent cut from the current 36-cent excise tax. The new rate of 28.5 cents per gallon could be approved Feb. 24 and take effect July 1, the start of the 2015-16 fiscal year. Californians will still pay some of the highest gas taxes in the nation, based on sales tax, federal taxes, and other fees.

“A gas tax cut of this magnitude would be great news for California drivers,” board member George Runner said in a statement. “The proposed cut stems from falling gas prices and the resulting over collection of tax.”

On Friday, a regular gallon of gas cost $2.77 in San Diego County, tax included, the Auto Club reports. So a driver who travels 15,000 miles a year at an average 20 miles per gallon buys 750 gallons a year, saving $56.25 over the year with the reduced tax rate. Alan Gin, economist at the University of San Diego, said each penny saved on gasoline equates to an extra million dollars for consumers to spend.

“It’s not big if you look at the overall economy of San Diego, in terms of its gross regional project,” he said. “It’s just a little bit of a help.”

The board has been charged with setting the excise tax rate under a complex system approved in 2010 by the state legislature and then-Gov. Arnold Schwarzenegger called the fuel-tax swap. The system allowed the state to take some money away from fixing roads to put toward future appropriations. To do this, California reduced the sales tax rate from 8.25 percent to 2.25 percent, and then made up for it by nearly doubling the excise tax rate from 18 cents per gallon to about 35 cents per gallon.

The new system was required to generate the same amount of money as the old system would have, which has led to adjustments each year. Taxable sales of gasoline fell each year from fiscal 2005 to 2013, finally increasing 0.9 percent to 14.57 billion gallons from fiscal 2013 to fiscal 2014.

Because of the ebb and flow in consumption and price, the board can do what’s called a “look back” and see how much tax revenue was actually raised in the two previous fiscal years versus what would have been collected under the previous system. It can then adjust the excise rate moving forward either upward or downward, based on prior activity as well as estimations on future price and consumption.

“The excise rate is set to replace exactly what was lost under the old sales tax system,” said Steve Gill, a professor of accountancy at San Diego State University. “In the short run, the tax can differ due to price estimates being off but it is required to be reconciled the next year.”

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