Sacramento dug budget hole — billionaire tax won’t – Latest News
Proponents of California’s proposed Billionaire Tax Act have a story to inform: President Donald Trump and the Washington Republicans cut health care, and so the “billionaire tax” is the essential response.
Then there’s the truth, which we describe in a new paper from the Hoover Institution.
Our evaluation appears at what Trump’s “One Big, Beautiful Bill” truly does to Medi-Cal, and whether or not the proposed first-in-the-nation wealth tax would handle it.
Spoiler alert: The reply to the second query is no, and the explanations begin with Sacramento, not Washington.
Bernie Sanders speaks on the Billionaire Tax Now rally on Wednesday, Feb. 18, 2026 in Los Angeles. Los Angeles Times through Getty Images
Start with the truth that the state of California doesn’t have a income drawback; it has a spending drawback.
State tax income is up 55 p.c since 2019, however spending is up more — 68 p.c over that very same period.
Newsom’s own January 2026 budget forecast projected a $93 billion shortfall over the subsequent 4 years. This is a hole that was dug totally by Sacramento Democrats, not Washington Republicans.
The driver of this disaster is Medi-Cal, California’s Medicaid program.
Attendees cheer as US guitarist Tom Morello performs during the Billionaire Tax Now rally on the Wiltern Theater in Los Angeles. CHRIS TORRES/EPA/Shutterstock
Since 2011, complete program expenditures have practically tripled, to about $185 billion a yr, and Medi-Cal’s declare on the overall fund has grown from 14 to twenty p.c.
Have Medi-Cal companies or high quality elevated practically threefold since 2011? They haven’t. By nearly each measurement, Medi-Cal’s high quality ranking stays under the national median for each adults and youngsters.
This isn’t a program in need of a bailout. It’s one which wants systemic reform.
Yes, the funding reductions within the One Big Beautiful Bill will cut back federal Medi-Cal spending by $156 billion over 10 years.
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But more than half of that — $89 billion — comes from work (or volunteer) necessities for able-bodied adults who don’t qualify for the law’s broad exemptions.
Paying the payments for able-bodied adults who select to not work, prepare, or volunteer 80 hours per 30 days is a coverage selection that Sacramento could make.
But voters ought to perceive it for what it’s: an optionally available state spending growth, not a hole created by Washington.
Gov. Gavin Newsom speaks to reporters inside the US Capitol in Washington, DC on May 20, 2026. Anadolu through Getty Images
What in regards to the wealth tax? It fails on its own phrases.
We project “one-time” income — scare quotes very a lot meant — of $40 billion. Using Sacramento-style math, that $40 billion is meant to cowl a $156 billion, 10-year federal discount.
Put one other approach: The “one-time” billionaire tax is aimed toward making sure work necessities for Medi-Cal by no means apply in California. That’s just about it.
Meanwhile, as billionaires go away, the state’s income tax base will erode by roughly $2.9 billion per yr.
When these recurring losses are mixed with the federal reductions, the $40 billion will likely be exhausted by 2029.
President Donald Trump speaks subsequent to Defense Secretary Pete Hegseth during a cupboard assembly within the Cabinet Room on the White House. REUTERS
At that time, each fiscal incentive factors towards extending the tax or passing a new one.
Suddenly, that “one-time” levy will look very very like a foot within the door to everlasting wealth taxation.
There is an various to all of this: Simply accepting the One Big Beautiful Bill’s work necessities. That would truly save the state roughly $15 billion over 10 years.
From there, the precise math isn’t difficult.
Ending “free” Medi-Cal for unlawful immigrants would save $4.1 billion yearly.
Returning Medi-Cal’s share of the General Fund to its pre-COVID average of 15.7 p.c would save $9.8 billion per yr.
Together, that may generate over $125 billion in financial savings, practically double the remaining $67 billion California has to cowl after work necessities are included.
The Billionaire Tax Act isn’t a resolution. It’s a deflection. The state has all of the fiscal instruments it wants to resolve its budget drawback. What it lacks is political will to make use of them.
Joshua Rauh is the George P. Shultz Senior Fellow in Economics on the Hoover Institution, Benjamin Jaros is a analysis fellow and John Doran is a analysis affiliate at Stanford University’s Hoover Institution.
