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Soaring inflation and $6.30 gas spur relief checks in California

Customers refuel in Concord, Calif., on June 22. (David Paul Morris/Bloomberg News)

Nearly 23 million residents of California, which has the nation’s highest average gas prices, may soon receive “inflation relief” checks to help address soaring costs, according to state lawmakers.

Gov. Gavin Newsom (D) announced a $17 billion relief package on Sunday to give tax refunds to tens of millions of Californians in the coming months. The plan, which is part of the state’s budget for 2022-2023, would also suspend California’s sales tax on diesel fuel and give additional aid for residents who need help with rent and utility bills, according to lawmakers.

“California’s budget 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,” Newsom said in a joint statement with Senate President Pro Tempore Toni G. Atkins (D) and Assembly Speaker Anthony Rendon (D).

The move, described by Newsom as a “middle-class tax rebate,” is a response to high gas prices and the economic strain felt by millions of consumers and businesses. The funding for the relief checks, which is expected to come in the fall, stems from the state’s record-setting $97 billion budget surplus.

The Democratic-controlled California Assembly is expected to vote on the agreement before Friday, according to KSBY. While Newsom says the relief checks will “help you fill your gas tank,” it remains unclear how they will impact the state’s significant inflation. Some experts in the state have expressed concern that the inflation relief checks could lead to higher fuel prices, which Newsom’s administration has denied.

“One-off tax holidays or rebates which put more money in people’s pockets without doing anything to boost supply are inflationary,” Jared Walczak, vice president of state projects at the Tax Foundation, a Washington-based research group, told the Sacramento Bee.

California has by far the highest average price for a gallon of regular-grade gas in the country. The state is averaging $6.30 for a gallon as of Tuesday, according to AAA — 29 percent higher than the national average, at $4.88. Twelve states and D.C. have average gas prices of $5 or more, according to AAA.

Western sanctions against Russia over its invasion of Ukraine have wreaked havoc with global energy markets, but the most significant measure — the European Union’s ban on Russian oil imports — will not go into effect until the end of this year. The Washington Post’s Jeff Stein reported this month that gas prices could be further pushed up by drivers hitting the road for summer vacations. The lifting of coronavirus restrictions in some Chinese cities is expected to lead to rebounding fuel demand there, raising prices internationally.

Average U.S. gas prices top $5 a gallon, as surging energy costs squeeze economy

Inflation overall reached 8.6 percent in May, the federal government reported this month, the highest rate in 40 years.

American consumers are also rethinking their spending habits when it comes to booking flights, eating at restaurants and getting haircuts. Retail sales slowed last month for the first time this year, driven by a 4 percent drop in car sales. U.S. flight bookings dipped 2.3 percent in May from a month earlier, according to data from Adobe Analytics. And high- and low-income Americans have begun pulling back spending, particularly on services, in the past four to six weeks, according to an analysis of credit card data by Barclays. The slowdown is concentrated in services, not goods, the bank found.

Americans are starting to pull back on travel and restaurants

In California, Newsom had proposed a plan to send $400 checks per vehicle to state residents, but that was met with pushback from lawmakers who wanted larger checks for those who made less money.

So how will the inflation-relief check program work? The process, which is expected to be similar to that of the federal stimulus checks that were part of President Biden’s American Rescue Plan, will be based on income, tax-filing status and household size. California households who are considered low- and middle-income are expected to benefit the most from the inflation-relief checks, according to the state.

‘Did the stimulus checks lead to inflation?’ Your questions, answered.

To get the maximum $1,050 check, the tax filing needs to be a single taxpayer earning less than $75,000 a year or a couple who file jointly and make less than $150,000 annually, according to the state’s proposal. That group will receive $350 upfront. Those who claim dependents will earn another $350 under the program. And those claiming at least one child would get another $350, bringing the total to $1,050 in inflation relief.

California Department of Finance spokesman H.D. Palmer told the Sacramento Bee that 82 percent of those benefiting from the program would be low- and middle-income residents.

Higher-income residents will also receive inflation relief checks, but the maximum payment per family is capped between $600 and $750, according to the state.

Single taxpayers making between $75,000 and $125,000 annually and couples who file jointly and earn between $150,000 and $250,000 will receive $250 upfront. They would earn the same amount if they claimed dependents or children, bringing the total to $750.

A single taxpayer who makes between $125,000 and $250,000 and couples who file jointly and earn between $250,000 and $500,000 annually would receive $200 upfront, according to the state. Parties filing in those income brackets would get an additional $200 each for dependents or children, resulting in a maximum of $600 in inflation relief.

The richest California residents are not eligible for the program. Single taxpayers earning more than $250,000 and couples making more than $500,000 will not receive inflation relief.

The checks are expected to be sent via direct deposit or debit card by late October, according to KCRA.

Newsom and lawmakers maintain in a statement that the new budget agreement, which includes more than $200 million in additional funding for reproductive health-care services following last week’s Supreme Court abortion ruling, will give the relief needed amid a time of inflation.

“In the face of growing economic uncertainty, this budget invests in California’s values while further filling the state’s budget reserves and building in triggers for future state spending to ensure budget stability for years to come,” Newsom and lawmakers said.

Jeff Stein and Abha Bhattarai contributed to this report.