Today, four months after Gov. Gavin Newsom called upon the Legislature to tax the excess profits of oil producers in California, we may finally get some details about the proposal.
Or we might not.
A Senate committee is slated to hold its first hearing on the “windfall profits penalty” proposed by the governor and introduced by Oakland Democratic Sen. Nancy Skinner. The hearing is only meant to be “informational” — an opportunity for lawmakers to hear from experts about what drives the state’s gas prices and what the Legislature can do about it. But the back-and-forth could give us a hint about how much appetite there is for this still very hypothetical tax.
The bill was introduced in early December with vague placeholder language that refers to imposing a “penalty” on an unspecified “maximum gross gasoline refining” profit. Proceeds from the penalty would be refunded to Californians.
- What’s in a word? Not labeling the tax a “tax” is no accident; California law requires two thirds of the Legislature to pass a tax, but only a majority to impose some fees.
The language of the bill hasn’t changed since Dec. 5, and some Capitol watchers are growing impatient. Newsom’s promises of sticking it to Big Oil is “just talk,” scolded L.A. columnist George Skelton earlier this month. “It’s past decision time,” columnist Tom Elias wrote two weeks ago.
What’s the hold-up? Newsom said it’s no surprise it’s taken time to work out the details when asked last week by my colleague Alexei Koseff, blaming the delay on the oil producers themselves and on the sheer magnitude of the task.
- Newsom: “The fact that oil companies aren’t even showing up to hearings…the fact that this is novel, no other state in history has done it.”
Whatever the proposal turns out to be, California’s big business interests are already against it. Last week, the California Chamber of Commerce blacklisted the bill by branding it as its first “job killer” of the 2023 session.
California Republicans are worried about the price of gas, too. In a Tuesday letter signed by all 26 GOP legislators, they urged Newsom to act now ahead of higher prices at the pump as the summer holiday travel season approaches. But in contrast to Newsom’s profit penalty, they put forward a very different prescription:
- Halting an automatic increase in the gas tax to keep up with inflation;
- Prolonging a pause on state diesel sales tax that Newsom put forward last year;
- Delaying a state mandate for refiners to start producing “summer blend” gasoline later this year, which burns cleaner but is more expensive to produce.
Newsom wasn’t having it: “Republicans are avoiding the core problem: an industry that operates with zero accountability and too much power over prices of a commodity essential to most California families.”
According to AAA, the average price in California on Tuesday for regular unleaded was $4.74 a gallon, $1.07 more than the national average.
As UC Berkeley energy economist Severin Borenstein has written, a number of factors explain that difference:
- About 70 cents can be explained by higher taxes and the state’s cap-and-trade program, which funds transportation infrastructure and many of the state’s climate-oriented programs
- Another 10 cents comes the rule that only certain smog-cutting blends of gasoline can be sold in the state
- The remaining difference, which soared to as much as $1 last year, is explained by neither taxes nor regulations.
What’s the cause of that “mystery” surcharge? Expect to hear plenty of theories at today’s hearing.
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