Why Are California Lawmakers Battling Over How to Spend Free Money?

Why Are California Lawmakers Battling Over How to Spend Free Money?

Why Are California Lawmakers Battling Over How to Spend Free Money?

When it comes to money, free is a very nice price. Who doesn’t like a free handout? Ask around and almost anyone would say they love to get something for nothing, which is why people spends millions in gambling and other games of chance. In fact, that famous, crazy strip in the desert of Las Vegas exists solely on the basis of getting “something for nothing.” However, when it comes to free money, there is usually a catch, especially when politics are involved.

How Do We Spend Free Money?

That’s the sort of scenario that is playing out in the state of California right now as politicians are considering how to spend a bunch of “free money.” This so-called free money comes from the “cap-and-trade” fees the state has obtained from businesses in an effort to cut back on greenhouse gases. However, there are some problems. First, politicians don’t see eye-to-eye when it comes to deciding how spending the money. Second, exactly how much money will actually materialize is still a big question. Third, some question if the fees are even legal.

How Much Money Will Actually Be Created?

Although some politicians and political pundits believe the fees will eventually create tens of billions of dollars in “free money” there is no way to be certain exactly how much will really materialize. The state legislature’s budget analyst estimates that the fees could total as much as $45 billion between 2012 and 2020. However, at the same time, he also notes that the figure could be as low as $12 billion. That is a huge range, which means the possible range of spending prospects is just as wide.

Are These Fees Even Legal?

Meantime, the legality of the fees themselves is already in question. Several business interests, together with the California Chamber of Commerce, have filed a lawsuit against the fees. They contend that the system in place to extract the fees is an illegal tax, because the Air Resource Board imposed it without going through the explicit legislative process. So far, the plaintiffs were unsuccessful in the original court round, but the suit is already being appealed and the outcome, just like greenhouse gases, is still up in the air.

Tax or Fee

The crux of the issue is whether or not the system is a fee or a tax. That question has come up in part because of the on-going dispute over the legal difference between a tax and fee in the state of California. It’s a battle that has raged for decades and that has never been fully clarified by the State Supreme Court.

Nothing’s for Free

How this battle plays out, like any other political battle over taxes, will be determined over time and through a lot of political jousting. That’s because while politicians see this “free money” as a way to pay for different special programs and projects, businesses on the other hand see it as just another tax to take away from their companies; while some even see it as an illegal tax, to boot

The Battle Rages On

So while it remains to be seen exactly how much money these fees designed to curb greenhouse gases will actually create, there will be no shortage of back-and-forth between the interested parties in what to do with it. Welcome to the battle that is California tax policy.


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Alan Olsen, CPA

Alan Olsen, is the Host of the American Dreams Show and the Managing Partner of GROCO.com.  GROCO is a premier family office and tax advisory firm located in the San Francisco Bay area serving clients all over the world.


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