Tax ‘holiday’ for gasoline proposed for California as inflation hits

California Governor Gavin Newsom said he’s proposing a “modest” holiday for the per-gallon tax consumers pay on gasoline as inflation hits the state with the highest fuel costs in the country.

Under his proposal, the state would delay an annual inflation-indexed increase in the fuel tax that was set for July 1. The annual adjustment would resume next fiscal year, though he said he’d consider delaying it again should economic conditions warrant it.

The proposal came in the $213 billion general fund budget Newsom unveiled Monday for fiscal year that begins in July. The first-term Democrat projects California will enjoy a $45.7 billion surplus as the most populous U.S. state enjoys strong tax revenue in the lopsided recovery from the pandemic.

“We’re also going to advance a modest — I don’t want to overstate this — but it’s a modest $523 million gas tax holiday of sorts,” Newsom said at an event debuting his budget.

Californians are paying the highest rates at a time gas prices have climbed across the country. The average price of a gallon of regular gasoline in California is $4.66, compared to $3.30 nationally, according to data Monday from AAA, the nation’s largest motoring organization.

The pause is expected to decrease fuel tax revenues by $523 million in 2022-23 based on an estimated 5.6-percent inflation rate, according to the budget document released by the governor’s office.

Newsom said “we’re going to back fill it in terms of the tax itself to the transportation projects so that there’s no direct impact to investments. But there will be a direct impact by avoiding that inflation adjustment that comes in July.

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