Democrats are feeling gas-price pressure. How Nancy Pelosi’s solution would affect California
Gasoline prices in California have been stuck at an average of about $5.70 a gallon for regular lately. Democrats in Washington and Sacramento, fearing voters will blame them for the stubbornly high prices, are working furiously to bring the costs down.
And while state officials see hope for some relief by summer, the outlook in Washington is more bleak.
Efforts to suspend the 18.4 cent a gallon federal gasoline tax are stalled. The latest Democratic leadership plan, unveiled this week, is to give the government more power to stop oil companies from reaping big, questionable profits.
Even if that’s approved by Congress — and that’s questionable — analysts are skeptical that the effort will do much, if anything, to bring down California’s gasoline prices, which remain the nation’s highest.
This latest Washington initiative, announced at a news conference that included House Speaker Nancy Pelosi, D-San Francisco, and Senate Commerce Committee Chair Maria Cantwell, D-Washington, would give the Federal Trade Commission more authority to investigate oil companies and hit them with stiff penalties.
“People want to know why we are not doing something about the exploitation of big oil in terms of its impact on America’s working families,” Pelosi said Thursday.
Can gas prices come down?
Democrats are well aware that inflation is a huge political headache for them as California prepares to send out primary election ballots.
A nationwide NPR/PBS NewsHour/Marist Poll taken April 19 to 26 found 26% found Democrats would do a better job handling the economy, while 42% favored Republicans.
In California, a Berkeley IGS poll taken March 29 to April 5 found 41% saying the recent gasoline price jumps are “causing a very serious problem for themselves and their families.” Another 28% said it’s a somewhat serious problem.
Many experts were skeptical that Washington Democrats’ idea would do much about prices.
“It’s an election year. If you can’t come up with a better excuse (for inflation) you distract from the original issue,” said Sanjay Varshney, professor of finance at California State University, Sacramento.
“Speaker Pelosi is looking for ways to deflect blame for inflation onto others, and the oil companies are an old, familiar target,” said Michael Shires, associate professor of public policy at Pepperdine University .
Washington lawmakers have floated other ideas to bring down gas prices, but they’ve gotten little traction.
Rep. Josh Harder, D-Turlock, and others have proposed suspending the 18.4 cent a gallon federal gasoline tax this year. Democratic leaders have been cool to the idea, saying that doing so would take money away from badly needed road maintenance projects. Harder supports the FTC push.
Pelosi was not enthusiastic Thursday about a gas tax holiday.
“The pros of it are that it’s good PR,” she said. “The cons are that there’s no guarantee that the saving — the reduction in the federal tax — that would be passed on to the consumer.”
Harder’s plan would require the Treasury Department to monitor how oil and gas companies pass the savings to consumers, and he would replace lost revenue with money from the government’s general fund.
In Sacramento, Gov. Gavin Newsom’s plan to freeze the upcoming July state gasoline tax increase is all but dead. The state tax is currently 51 cents a gallon, as state motorists pay the highest fuel taxes in the country.
More likely to succeed, though not until sometime in the summer, is an effort to give drivers a sort of financial relief. Newsom’s plan would give drivers $400 per vehicle, up to $800, as a debit card.
Legislative leaders are offering a plan targeted at low and middle income Californians. People would have to earn less than $125,000 as a single tax filer and under $250,000 if they file jointly. People could get $200 per taxpayer and per dependent, meaning a family of four would receive $800.
California and inflation
In Washington, it was the proposal to more closely look at oil companies that was most on leadership minds Thursday. Cantwell estimated that in Western states, such windfalls have added as much as 50 cents a gallon to pump prices.
California’s average Friday was $5.70, according to AAA, up from $4.01 a year ago.
The bill would set up a new unit at the FTC that would be “continuously and comprehensively monitoring and analyzing crude oil, gasoline, diesel, home heating oil, and other petroleum distillate markets in order to facilitate transparent and competitive market practices.”
The maximum penalty for “manipulating wholesale oil markets” could be as much as $2 million a day for each violation.
The oil industry vigorously disputes the notion that it’s overcharging consumers.
“The price at the pump that Americans are currently paying is a function of increased demand and lagging supply combined with geopolitical turmoil and policy uncertainty from Washington,” said Frank Macchiarola, senior vice president of policy, economics and regulatory affairs at the American Petroleum Institute.
Analysts question whether any of this will appreciably bring down prices anytime soon.
“The inherent problem is oil companies don’t... set... prices,” said Patrick De Haan, head of petroleum analysis at GasBuddy.
“Do we charge Apple for being successful? Will we rebate oil companies when prices collapse and they hemorrhage billions?” he asked. “This is an extremely slippery slope and politicians are concentrating literally on all the worst ideas I’ve ever heard.”
The issue is one of supply and demand. As the economy recovers from the COVID-19 pandemic, demand is up while supply is catching up. And there’s no easy way to draw a straight line between price trends and why producers may be producing more or less oil.
Why, for instance, don’t other countries produce more oil? “We should be looking at global players,” Varshney said,
He questioned whether any gouging was occurring. “It’s no surprise companies are the beneficiaries of higher prices,” he said.
This story was originally published April 30, 2022 at 5:00 AM.
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