Falling oil prices huge boon for consumers, but California set to tax it away
The American economy is getting the equivalent of a huge tax cut thanks to the decline in oil prices, down roughly 40% since June. Steven Mufson, writing in the Washington Post, puts some numbers to the benefit:
Every day, American motorists are saving $630 million on gasoline compared with what they paid at June prices, and they would get a $230 billion windfall if prices were to stay this low for a year. The vast majority of that will flow into the economy, with lower-income households living on tight budgets likely to use money not otherwise spent on gas to buy groceries, clothing and other staples.
On Monday, the average U.S. price for a gallon of regular-grade gasoline was $2.77, according to AAA, which projects that prices could drop by an additional 10 to 20 cents.
Big American companies are better off, too. Every penny the price of jet fuel declines means savings of $40 million for Delta Air Lines, the company’s chief executive said in a recent CBS interview.
There is a double benefit to the economy: consumer spending will rise as costs fall for companies. That spells increased investment and, ultimately, employment. This is the start of a virtuous cycle, a recipe for economic growth. And if the American economy starts growing, it could act as the fabled “locomotive” for the world economy.
Of course, if that happens, there will be upward pressures on oil prices. And if the current low prices cause some new technology (fracking) operations to shut down, thereby constraining supply, that could also drive up world oil prices.
But in California, which accounts for over an eighth of the American economy, Cap and Trade regulations are set to kick in January 1, and that could tax away much of the benefit for California business and consumers. Amazingly, the regulations are so complex that nobody can agree on how much gasoline prices will rise, but the nonpartisan Legislative Analyst’s Office estimates a broad range of between 13 cents and 50 cents a gallon “or more.” Industry spokesmen bandy about the figure of 75 cents a gallon, which would come close to erasing the pump price decrease.
California Republicans, barely in existence, have offered legislation to exempt oil and gas from Cap and Trade. Jeremy White of the Sacramento Bee writes::
Republican lawmakers chose the first day of the 2015-2016 legislative session to announce their bill. Speaking before new members were to be sworn in to the Legislature, they said inaction would reverse low gas prices and burden individual drivers, businesses, schools and farms.
“We are all becoming accustomed to the free market working well with respect to the price of oil and natural gas and gasoline, and we are seeing some of the lowest prices for gasoline,” said Assemblyman Jim Patterson, R-Fresno, “and yet, come January, the state of California is going to ratchet up those costs.”
A price increase would particularly hit residents of larger, often rural districts who must drive long distances to get to school and work, lawmakers said.
“In many if not most areas of California, alternative transportation choices simply don’t exist,” said Assembly Minority Leader Kristin Olsen, R-Modesto.
The bills would go further than what Democrats backed last year. Legislation by Assemblyman Henry Perea, D-Fresno, would have delayed putting transportation fuels under the program. The Republican proposal would keep oil and gas out permanently.
While Republicans are unified in their opposition the the policy and numerous centrist Democrats have objected, Democratic leaders in both the Senate and the Assembly have reaffirmed their support for staying the course and letting the cap-and-trade system proceed as planned. Gov. Jerry Brown also opposes changes.
Despite that hurdle, Republicans said they will gain traction as constituents encounter higher gas prices and start pressuring their elected representatives. The fact that 16 Democrats signed a letter criticizing cap-and-trade signals growing bipartisan discontent with the program, Patterson said.
“Our guess is that that number of 16 will grow,” Patterson said.
A sudden increase in gasoline prices certainly will be noticed by voters, including many poorer people who must drive to work. The ultimate irony is that the ostehnsible purpose of the regulation, halting global warming, would not be accomplished, even if you buy into the entire warmist theory. China and India both would swamp any reduction by California, not to mention the rest of the country driving more thanks to lower prices denied Californians. It is an empty symbolic gesture aimed at making wealthy Democrat donors feel good about themselves. Meawhile, the rest of the state, including many poorer Democrat voters, will suffer and the state
California's economy and unemployment will worsen. And more companies will pull up stakes and move to Texas, like Toyota.