California has long had the reputation—backed by copious data—of being a high-tax state. This made Gov. Gavin Newsom’s declaration last June, in a prerecorded State of the State address, a bit startling.
“Here’s the truth Republicans never tell you: California is not a high-tax state,” Newsom said. Later, he clarified his assertion, explaining that California’s taxes on low-income residents are relatively lower than those in red states.
“Catering to big business and the rich is also why red states tax their lowest earners far more than California does. They punish you when you’re struggling, but give you a free pass when you’re wealthy,” the governor said.
There’s some truth to that. California’s very progressive income tax system—with the nation’s highest marginal rate of 13.3%—makes its state budget highly dependent on taxing incomes of its wealthiest residents. Meanwhile, those in low- and moderate-income brackets pay little or no income taxes.
Nevertheless, taxes imposed by state and local governments still put California in the highest ranks among the 50 states. This includes total collections of more than $400 billion a year from all sources, per capita taxes exceeding $10,000 each, and taxes as a significant 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—out-taxed only by New York and New Jersey.
“California combines high tax rates with an uncompetitive tax structure, yielding one of the worst rankings on the Index,” the Tax Foundation notes.
The state’s $322 billion budget for 2025-26 counts on $297 billion from about a dozen different taxes. Additionally, cities, counties, school districts, and other local agencies take in another $100 billion or so, primarily from property taxes and local shares of the sales tax. The budget anticipates $207 billion in general fund revenues.
So far, revenue is running a bit ahead of expectations, but general fund spending is budgeted at $226 billion. To cover this gap, the state has taken maneuvers such as shifting $7.1 billion from emergency reserves, pushing the June 2026 state payroll into the following fiscal year, and tapping special funds for loans.
State budget experts call this a “structural deficit” that will continue indefinitely in the absence of either sharp spending reductions or tax increases.
There is little appetite for spending cuts in a Legislature dominated by Democrats, but there is some support for tax increases. The California Taxpayers Association recently reported that legislators proposed more than $16 billion in new taxes and fees during the recently concluded 2025 session.
The battle over taxes appears to be headed for the 2026 ballot, with two pro-taxation measures backed by public employee unions and other left-leaning groups, and one measure that would create a new hurdle for local tax increases.
One pro-tax measure would direct all its revenue—potentially as much as $15 billion a year—to K-12 schools and community colleges.
A second measure, sponsored mainly by the Service Employees International Union-United Healthcare Workers West, would impose a one-time 5% tax on the wealth of California’s billionaires. This would raise about $100 billion, with $25 billion a year spent to cover the state’s structural deficit and bolster health care services.
The third measure, sponsored by the Howard Jarvis Taxpayers Association, seeks to overturn a state Supreme Court ruling and re-impose a two-thirds voter approval requirement on all proposed local taxes designated for particular purposes.
California remains a blue state with relatively high taxes. The question now is: Do voters want to add more taxes or make it more difficult to add them?
Dan Walters is a CalMatters columnist.
https://www.mercurynews.com/2025/11/14/walters-california-is-a-high-tax-state-are-more-taxes-a-balm-for-its-budget-deficits/