Are more taxes a balm for California’s budget deficit?

from Dan WaltersCalMatters

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California has long had a reputation — backed by plenty of data — as a high-tax state, which made Gov. Gavin Newsom’s declaration last June, in a pre-recorded State of the State address, a little jarring.

“Here’s the truth Republicans never tell you: California is not a high-tax state,” Newsom said.

Later he explain your statementsaying California taxes for low-income residents are relatively lower than those in red states.

“Taking care of big business and the wealthy is also why red states tax their lowest-paid so much more than California. They punish you when you struggle, but give you a free pass when you’re rich,” the governor said.

There is some truth to this. California’s highly progressive income tax system, with the highest marginal rate in the country at 13.3%, makes the state budget heavily dependent on taxing the incomes of the wealthiest residents, while those with low and moderate incomes pay little or no income taxes.

Still, taxes levied by state and local governments rank California among the highest of the 50 states, not only overall — more than $400 billion annually from all sources — but also per capita — more than $10,000 each — and as a percentage of its $3.6 trillion in total personal income.

The Washington-based Tax Foundation ranks Californians’ state and local tax burden 48th, one of the highest in the nation, surpassed in taxes only by New York and New Jersey.

“California combines high tax rates with an uncompetitive tax structure, resulting in one of the worst rankings in the index,” says the Tax Foundation.

The state’s $322 billion budget for 2025-26 relies on $297 billion from about a dozen different taxeswhile cities, counties, school districts and other local agencies take in about $100 billion more, mostly from property taxes and local sales tax shares.

The budget calls for $207 billion in general fund revenue. So far, revenues are a little ahead, but the fund’s total spending is budgeted at $226 billion. Maneuvers to cover the gap include transferring $7.1 billion from emergency reserves, moving the state’s June 2026 payroll into the next fiscal year and using special borrowing funds.

State budget experts call it a “structural deficit” that will continue indefinitely absent sharp spending cuts or tax increases.

There is little appetite for the former in a Democrat-dominated legislature, but some support for the latter. The California Taxpayers Association recently reported that lawmakers proposed more than $16 billion in new taxes and fees during the recently concluded 2025 session.

The battle over taxes appears headed for the 2026 ballot, with two pro-tax measures being pushed by public employee unions and other left-wing groups and one that would create a new roadblock to local tax increases.

One proposal, supported by the California Teachers Association, would make a permanent temporary tax increase for high-income Californians, first approved in 2012 to close a budget deficit and later extended through 2030 by a vote. All of its proceeds, up to $15 billion a year, will go to K-12 schools and community colleges.

A second measure, sponsored mainly by the Service Employees International Union – United Health Workers of the West, would impose a one-time 5% tax on the wealth of California billionaires, raising about $100 billion, which will be spent at the rate of $25 billion annually to cover the state’s structural deficit and support health services.

The third, sponsored by the Howard Jarvis Taxpayers Association, would have overturned state Supreme Court decision and re-imposing two-thirds voter approval requirement for all proposed local taxes earmarked for specific purposes.

California is now a blue state with relatively high taxes. Do voters want to add more, or do they make it difficult to add more?

This article was originally published on CalMatters and is republished under Creative Commons Attribution-NonCommercial-No Derivatives license.