April 11, 2017

Diesel taxes in California heading higher as state passes funding plan

Excise, sales taxes to climb by double digits over 10 years; California trucking group applauds measure.

By DC Velocity Staff

Starting Nov. 1, truckers will pay more to fill up in California. The state's legislature passed legislation late last week to hike the excise tax on diesel fuel by 20 cents a gallon over the next 10 years to help fund a $52 billion infrastructure improvement program.

The measure, expected to be signed into law by Gov. Jerry Brown sometime this week, will increase diesel taxes to 36 cents a gallon over the 10-year period. It also increases the state sales tax on diesel from 9 percent to 13 percent. In return, the legislature has agreed to ease future greenhouse gas regulations on commercial trucks to help truckers adjust to the new tax rates on diesel, according to a report from station KCRA.

The higher diesel excise and sales tax rates are expected to generate $10.8 billion in revenue over the next 10 years. About $24.4 billion will be generated by a 12-cent gasoline tax increase, with another $16.3 billion coming from an annual vehicle fee of between $25 and $175, depending on the vehicle's value.

At more than $2.93 a gallon, California has the highest diesel fuel prices in the country, according to the most recent data compiled by the U.S. Department of Energy's Energy Information Administration. It has the country's seventh-highest diesel taxes after state, local, and federal levies are combined, according to the American Petroleum Institute (API).

Shawn Yadon, CEO of the California Trucking Association, applauded the measure, calling it a "win for all Californians, including the trucking industry, which has been significantly impacted by our deteriorating roads and infrastructure." Yadon said the funding options "will give our state a prudent and reliable revenue source to fix our roads and keep goods moving in and through California." The legislation is the latest, and perhaps the most dramatic, example of states taking the lead to boost fuel taxes to fund infrastructure improvements. By contrast, federal levies on gasoline and diesel—the latter tax stands at 24.4 cents per gallon—have not been raised since 1993, and are believed to have lost about 40 percent of their purchasing power due to inflation. The result is that the Highway Trust Fund, which funds road projects and is almost entirely financed by motor fuels taxes, consistently runs a deficit, and must rely on capital transfers from the general treasury to remain solvent.

Until California's action, the most drastic step has come from New Jersey, another state with heavy trucking activity. Gov. Chris Christie in October signed legislation to increase diesel taxes by 16 cents a gallon effective Jan. 1, which would bring the total tax to 27 cents a gallon. A second increase, to take effect July 1, will be based on 12.5 percent of the per-gallon diesel price, before taxes.

Despite calls from shippers, carriers, and others for what they contend is a long-overdue hike in the federal levy, no one expects the Trump administration or a Republican Congress, both with an aversion to any tax increases, to push such an initiative. Robert Poole, Searle Freedom Trust transportation fellow and director of transportation policy at the Reason Foundation, a Libertarian public policy group, doesn't think the California measure will have any influence at the federal level.

Poole noted that the vote in the California legislature was highly partisan, with most Democrats supporting the proposal and virtually all Republicans opposed. Poole said that Brown, a Democrat, had to agree to $1 billion in "sweeteners" to a handful of Democrats and one Republican in order to achieve the two-thirds majority needed to pass the bill. A similar scenario does not exist in Congress, he said.

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