Politico published a story Friday about the battle between Gov. Gavin Newsom and California’s progressives. As everyone knows by now, Newsom is running for president in 2028 and he’s decided that, in order to do that, he needs to do two things that are at odds with one another. On the one hand, he needs to balance California’s budget.
Newsom, people around him say, is determined to leave California with a balanced budget. He knows many voters outside the state would be wary of a San Francisco Democrat, and leaving California’s budget in fragile shape could open him to attacks from 2028 rivals or from the next governor, who could pin a deficit on the mess Newsom left behind.
“There’s going to be two years between the end of (Newsom’s) term as governor and potentially running for president,” said Jeff Freitas, head of the California Federation of Teachers. “California has to be successful in those two years.”…
“The governor wants to leave the next governor a stable and balanced budget that protects essential services for the most vulnerable, and continues to spur innovation and economic growth in this state,” [spokesperson Bob] Salladay said in a statement.
But balancing the budget so he can present himself as a responsible administrator is not going to be easy. Just a few weeks ago, California’s Legislative Analysts Office predicted the looming deficit at $18 billion with even larger deficits to come after that.
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 underlying problem here is overspending but of course no one wants to admit that in a blue state where Democrats control everything. For instance, Newsom could probably cut that deficit in half by simply admitting that offering Medicaid to illegal immigrants is something the state can’t afford. But he won’t do that.
And that leaves him with only one option to balance the budget: Find more revenue from somewhere. The question he needs to answer by June of 2026 is where to come up with another $18 billion per year.
The state’s progressives have already proposed their own answer to that question. Newsom could solve the budget problem with a “one-time wealth tax” aimed at fewer than 200 state residents.
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.
A wealth tax, as I’ve discussed before, doesn’t take 5% of your income, it takes 5% of everything you own. So if you are a major shareholder in a company you started or own valuable art or real estate, you’d be expected to submit to a rigorous audit to identify all of it and then sell your ownership in 5% so you can pay the state tax.
The supporters of this plan say doing this just once would raise $100 billion which could be doled out to the state at $25 billion per year for the next four years, covering the budged deficit and leaving a bit left over for new spending. And after that? Well, the claim is that this is a one time tax so, in theory, California would be on its own after four years. Does anyone really believe that? Will the 180 or so billionaires paying this tax believe it? Or would they leave the state to avoid a repeat?
Gavin Newsom, to his credit, has said no to this plan. He’s a leftist, but he’s also smart enough to know that doing this once would result in a lot of those wealthy business owners leaving the state for good. And that would mean a big decline in the state’s tax rolls in the years that follow. In short, you might solve the structural deficit for four years but only at the cost of killing the proverbial goose laying the golden eggs. You can’t tax the billionaires if they all flee to Texas or Florida.
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…
So that’s where things stand now. Newsom wants to balance the budget without resorting to a wealth tax and progressives are hinting that he needs to change his tune.
If he holds the line on taxes, he risks alienating unions and progressive allies who form the backbone of the Democratic electorate. If he doesn’t, he risks reinforcing the Republican caricature of him as a California tax-and-spend liberal, and driving away moderate voters and the titans of California industry who have supported Newsom since he first entered politics…
“There is this idea he’s trying to appeal as not a tax-and-spend guy,” said Alex Lee, a state lawmaker who chairs a group of progressive Democrats pushing for more revenue. “Americans of all political stripes do not love billionaires right now, and if you’re seen as a defender of billionaires that’s going to hurt you down the line.”…
“It’s clear this administration is trying to attack the most vulnerable among us,” said SEIU California Executive Director Tia Orr. “I trust and am confident that this governor is going to do everything in his power to protect those folks from receiving the hits that this administration is aiming directly at them.”
That’s the neat and sanitized version that progressive are willing to communicate to news outlets. I’m sure it doesn’t sound as reasonable behind the scenes. It never does where unions are involved. Their stock in trade is threats. Do this or else. Tax the billionaires or we’ll run a campaign labeling you a defender of billionaires and a friend of Elon. That’s probably what he’s being told behind the scenes.
It’ll be really interesting to see how Newsom solves this problem. He can refuse the wealth tax but if he wants to balance the budget, he’ll have to come up with a boatload of money from somewhere. Again, the sensible thing would be to cut spending and show he can make some hard choices, but the progressives really wouldn’t like that. That would be a double betrayal. He’s got about six more months to figure it out.
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