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California Gov. Gavin Newsom
Photo:
Rich Pedroncelli/Associated Press
California Gov.
Gavin Newsom
is pushing another tax increase, not that he wants to admit it. Last week he asked his Democratic Legislature to pass a “price gouging penalty”—don’t call it a tax—on oil companies’ “excess profits.” Is he trying to raise the state’s sky-high gas prices even more?
“California’s price gouging penalty is simple—either Big Oil reins in the profits and prices, or they’ll pay a penalty,” the Governor said. California’s gasoline prices have fallen since early October when they were averaging about $6.20 a gallon but they are still $1.27 more that the national average. The reason is simple.
California requires a special “cleaner” fuel that refiners outside the state don’t make. The state’s climate regulations have driven several to shut down or convert to producing biofuels. California lost 12% of refining capacity in the last four years and is set to lose another 8% by the end of next year.
So when one or two refiners experience problems, as happened during the fall, the state’s fuel supply shrinks and prices spike. Refiners’ normally narrow profits then swell. Refiners in Los Angeles this fall were making 15 times more in profit per barrel than those on the Gulf Coast. This is high-school economics, though we’re not sure they teach that anymore.
If the Governor wants to reduce gas prices, the solution is to expand the fuel supply by easing costly climate regulations and encouraging investment in refining. His profits tax—sorry, “penalty”—would do the opposite.
Mr. Newsom calls it a penalty rather than a tax because the latter requires a legislative super-majority to pass. Even though Democrats have a super-majority, moderates from lower-income areas are loath to vote for legislation that would raise gas prices, as Mr. Newsom’s tax would do. Dishonesty plus economic ignorance equals California government.
Copyright ©2022 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8
Appeared in the December 12, 2022, print edition.
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