Will California’s $17 Billion Relief Package Reduce Inflation?

As the California Globe reports, Gov. Newsom and state legislators have approved a $17 billion inflation relief package that will pay $350 each to joint filers making up to $150,000. Those who make up to $125,000 a year, or joint filers making up to $250,000, will get $250 each. Those who make up to $250,000 a year, or $500,000 filing jointly, get $200 each. With additions for dependents, “Californians could see as much $1,050, $750, or $600 coming in per household depending on tier level.”

According to legislators, the budget deal “addresses the state’s most pressing needs, and prioritizes getting dollars back into the pockets of millions of Californians who are grappling with global inflation and rising prices of everything from gas to groceries.” 

In March, Gov. Newsom proposed an $11 billion relief package for Californians facing higher gasoline prices. “We’re taking immediate action to get money directly into the pockets of Californians who are facing higher gas prices as a direct result of Putin’s invasion of Ukraine,” said Gov. Newsom. 

Earlier that month, state legislators refused to pass Assembly Bill 1638, which would have provided relief by suspending the state’s gas tax, saving Californians 51 cents a gallon for about six months. Senate Bill 1, signed into law by then Gov. Jerry Brown in 2017, increased the gas tax by 12 cents per gallon and boosted automobile registration fees by more than $175. Motorists also face switching to the summer blend of gasoline, which adds 15 cents per gallon. 

In June, Californians paid the nation’s highest gasoline prices, an average of $6.44 for a gallon of regular, well above the national average of $5.014. In Mendocino, Californians pay $9.50 per gallon, the highest price in the United States. Diesel prices are north of $7.00 per gallon, affecting the costs of many items, including groceries. 

Unlike the federal government, the state of California cannot simply print money. The $17 billion plan simply gives back to Californians what the government has taken from them in taxes. California income and sales taxes are among the country’s highest, and legislators are hesitant to provide relief by cutting the rates, lowering the number of brackets, or changing to a flat tax. 

As workers who commute to their jobs might note, the various government relief plans do nothing to increase the gasoline supply. Legislators provide no incentive to find new sources of oil or expand refining capacity. 

If Californians thought the $17 billion deal would do little, if anything, to reduce inflation, it would be hard to blame them. It’s bad economics beyond any reasonable doubt.