As the Wall Street Journal’s editorial board pointed out last week, California is facing some serious budget problems.
The state is facing huge budget deficits despite an ebullient stock market and capital-gains rush.
That was the warning last week from the state Legislative Analyst’s Office (LAO). The nonpartisan policy adviser projects an $18 billion budget gap in the coming fiscal year and $35 billion shortfalls after that. This may be optimistic since it assumes no recession or severe market correction in the next several years. What are the odds of that?
The fundamental problem, LAO says, is “spending growth continuing to outstrip revenue growth.”
The AI boom in California gets a lot of attention but under Democrats there has been a state government boom as well.
State spending as a share of personal income has increased by 20% over the last decade, and the state’s number of workers per capita has climbed 22%. Sacramento has grown its government workforce, even though most businesses are doing little hiring.
Democrats may try to blame the GOP tax bill’s Medicaid and food-stamp reforms, but their estimated contribution to the state’s deficit is de minimis—about $1.3 billion. This is nothing compared to the $120 billion the feds are spending this year on California’s Medicaid program, which is $24 billion more than two years ago.
One of the drivers of this overspending is the decision to extend Medi-Cal (California’s Medicaid) to illegal immigrants. That turned out to be far more costly than anticipated and blew a hole in last year’s budget. Newsom announced the offer was being paused because the state couldn’t afford to cover anyone else.
But now far-left union members and some academics in the state have proposed a solution to the overspending: A wealth tax on billionaires.
California is again toying with retroactive taxes — targeting the wealthy regardless of whether they flee the state. Welcome to Hotel California, “you can check out any time you like, but you can never leave.”California democrats have long faced the same dilemma of constantly tapping the wealthy to cover their deficit spending: these individuals and their wealth are mobile. They can simply leave and many are doing so…
Previously, the state moved to tax people who left the state. Now, the state is seeking a billionaire tax and making it retroactive. Thus, even if you were waiting to decide to leave, it is too late. You are being taxed for the prior year…
The “2026 Billionaires Tax Act” would impose a one-time 5% tax on individual wealth exceeding $1 billion. While technically using 2026 wealth figures, it would apply to billionaires who resided in California in 2025. So you cannot hope to flee… at least with your wealth intact. It is a penalty for those who stayed too long hoping that rational minds would prevail in California.
That sounds like a slam dunk in California. Just convince enough people to vote to steal the wealth of 180 or so billionaires who weren’t smart enough to leave the state before now.
However, even in California there are some things more important than soaking the rich. One of those things is Gavin Newsom’s desire to be our next president. Newsom has effectively been running for the past year already. A wealth tax might go over fine in California or Massachusetts but it probably would hurt him in a lot of swing states. So this week, word leaked that Newsom was against it.
A campaign to plug California’s leaky health care system by squeezing the state’s richest has a high-profile opponent: Gov. Gavin Newsom.
Dan Newman, a political adviser opposing the campaign to tax billionaires, said Newsom is against a plan to slap a one-time, 5% tax on roughly 200 Californians worth more than $1 billion to “replace lost federal dollars and protect essential services,” as described by the campaign’s website…
The governor’s opposition is a blow to progressives and labor interests backing the tax plan, which could raise some $100 billion over five years, according to supporters. Opponents of the tax say it could drive wealthy residents out of California, ultimately worsening the state’s colossal budget deficit…
Suzanne Jimenez, chief of staff at SEIU-UHW, told The Post she believes Newsom and others with reservations about the tax will ultimately lend their support.
Could he change his mind as SEIU imagines? Anything is possible and I guess and the fact that he hasn’t said this in his own words suggests he’s not ready to be pinned down yet. But I really don’t think he’ll change his mind.
The unions really imagine that passing this tax won’t result in any future changes, i.e. billionaires leaving in droves. Newsom is smart enough to know this would be a disaster if it really passed. Billionaires might sue over the retroactive nature of the tax and whether they win or lose, many of them would leave. That would make the budget crisis even worse once the state has spent the $100 billion it expropriated from the wealthy. The only option then will be to repeat the “one time” wealth tax. Each time they do, there will be a bigger shortfall as more billionaires leave the state for good. Sooner or later they would run out of other people’s money.
Part of me would love to see it happen. California is a beautiful place that has been spoiled by its own success into a constant flirtation with every daft socialist policy idea that comes along. The state has gone from Ronald Reagan as governor to Gavin Newsom as governor. A few years of insolvency and abject humiliation on the national stage would do the place a lot of good in the long run. Get back to running things with a smaller state government taxing and spending a lot less money that it currently does and it could be a great place once again.
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