Taxing the rich to backfill Trump-induced federal funding cuts might sound like a no-brainer policy for the party’s left flank, which counts wealth inequality among its top issues. 

But despite a strong show of support from prominent national figures, including Sen. Bernie Sanders of Vermont and liberal economist Robert Reich, the “2026 California Billionaire Tax Act” has become a hot potato for labor leaders.

The proposed initiative would levy a one-time tax of 5% on any resident of California whose net worth exceeds $1 billion, which applies to around 200 people, according to Forbes. That money would plug an estimated $100 billion hole left by federal cuts to Medi-Cal and other social service programs.

Publicly, prominent labor and progressive players have largely kept quiet, unlike Gov. Gavin Newsom who has aired his disdain loud and clear. Yet in private, some union leaders and their allies in the Legislature rail against the measure. Of the critics who spoke with CalMatters for this story — three union leaders and five members of the Legislative Progressive Caucus — only one lawmaker would criticize the measure openly. 

Critics question its feasibility and whether the state even knows how to accurately appraise a billionaire’s total wealth, a crucial step to evaluating how much tax they would owe. They fear long-term revenue loss by driving wealthy people out of California. And some resent that the union sponsoring the initiative, SEIU-United Healthcare Workers West, designed the measure to predominantly benefit its members rather than boost the state’s general fund, where it could go to all budget needs. 

“It’s not that taxing billionaires in itself is wrong,” said Keely Martin Bosler, formerly the top state budget officer to Newsom and former Gov. Jerry Brown. She is now a Democratic consultant who has advised several of California’s most powerful labor groups, including the Service Employees International Union of California, the parent union of SEIU-UHW. “The way in which this tax specifically is constructed is problematic.”

Many progressive state lawmakers and Capitol heavyweights, such as Sen. Scott Wiener of San Francisco and the powerful California Labor Federation, have sidestepped the question of whether they’d support it, declining for now to take a position on an initiative that has yet to officially qualify for the ballot. 

“The Labor Federation won’t take it up for an endorsement until July,” said Lorena Gonzalez, the organization’s president, in a text message.

Yet if the tax lands on the November ballot, as it appears on track to do, progressive critics will be saddled with the tricky optics of opposing — or at least not supporting — a measure that embodies one of their base’s core tenets: taxing the rich.

Even the mere threat the measure could qualify for the ballot has already spurred a torrent of opposition spending — more than $50 million in total so far — from billionaires such as Google co-founder Sergey Brin and cryptocurrency mogul Chris Larsen. Brin’s group, known as “Building a Better California,” has also spawned three new competing ballot measures designed to undermine the billionaires’ tax. 

Critics fear that if billionaires like Brin become even bigger perennial spenders in California politics, they could neuter the progressive agenda by bankrolling more business-friendly candidates and ousting left-leaning, labor-aligned legislators. 

But the measure’s proponents say they are undeterred by the secretive detractors and challenge their critics to put their names behind their words.

“What we have is a group of so-called leaders who are not reflecting the attitudes of their own constituents,” said Dave Regan, president of SEIU-UHW and the de facto leader of the billionaire tax measure. “That’s why they want to be anonymous.”

Regan said he’s confident the initiative will amass enough signatures to qualify for the ballot before the end of April. Then, he said, “We believe a lot of those people are going to come around and change because this makes sense, because the public is supportive, because their own members are supportive.”

The case for, and against, the billionaires’ tax

So far, polling has shown the billionaire tax is relatively popular with voters. Recent surveys show just over half of Californians surveyed said they’re inclined to vote for it. 

Critics point out that California’s existing state tax structure is entirely based on income, rather than net worth. The state would have to appraise each person’s assets, including real estate, art, automobiles and private and public businesses. The billionaires could pay in installments, handing over 1% of their wealth annually for five years.

Bosler said that with income tax filings, the Franchise Tax Board can use data from federal tax returns to verify its own analysis. Since there’s no federal wealth tax, California would be forging uncharted territory with no tax compliance support from any other source or agency — a risky move that could invite legal challenges. 

“The state is not a miracle worker, like, they’re not going to suddenly be able to do all of this like perfectly,” said Bosler. “I mean they will do their best, but I just think this is expertise that they have built up over 50-plus years. Like, none of this is in their wheelhouse at this point.”

But champions of the tax argue it is the only real solution on the table so far to save hospitals, health care jobs and, ultimately, patient lives they say are at risk due to federal funding cuts to Medi-Cal and food assistance programs. 

Supporters note that the tax is not intended to solve California’s structural budget problems. 

“It’s one-time funding to fill what we hope is a one-time hole,” said Brian Galle, a tax law professor at UC Berkeley who helped craft the measure. Galle said only around 200 people would be subjected to the tax, so the extra burden on the Franchise Tax Board wouldn’t be too great. 

“It’s not like FTB is going to get a blizzard of tens of thousands of new returns that they’re going to have to figure out a whole new data system for cracking,” said Galle.

Why some progressives aren’t on board

Those who have qualms with the initiative have largely kept their criticisms private. 

One liberal state legislator, who spoke on the condition of anonymity, said the infighting among the unions puts progressive lawmakers in a difficult position. While he empathizes with the urgency that health care workers feel, he and other Democrats are not convinced the policy could withstand legal challenges and worry about the wealthy employing savvy accounting maneuvers to skirt the tax altogether.

Some organizations that are synonymous with progressive politics in California, such as the Working Families Party, also haven’t taken a position, even as other unions such as the Teamsters and AFSCME California support it. 

Even the powerhouse labor union SEIU California is choosing not to take a position on the measure, which is spearheaded by one of its local affiliates, SEIU-United Healthcare Workers West. 

Assemblymember Chris Ward, a member of the progressive caucus, called the measure a “well-meaning effort by UHW,” but criticized the proposal for being just a one-time tax primarily benefiting the health care sector rather than boosting the state’s overall revenues. Regan said SEIU-UHW made the tax one-time to nullify the argument that it would push billionaires out of the state.

Ward noted that he and his colleagues are considering “superior” bills, such as one that would close a corporate tax loop to generate $3 billion per year, and another that would create a new tax on corporations that pay workers so little that they qualify for Medi-Cal and nutrition assistance.

Regan argued these measures would only make California more unaffordable, since businesses would pass their increased costs along to consumers. 

Ward, the sole state lawmaker who would candidly share his concerns about the initiative with CalMatters, said he and his colleagues have heard pushback from “a number of other labor organizations that don’t support that initiative,” primarily because its members would not directly benefit from any of the revenue. Uniting labor, he said, is the key to any successful revenue solution.

“There’s a need to look at a wealth tax for a more broad range, including health care workers but other purposes that are state priorities,” Ward said, “and that will be left off of the table if this is the only question we’re seeing.”

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“Congressman Calvert’s district faces a serious threat,” said Tammy Peace, an emergency room nursing assistant in Palm Springs. “If Medi-Cal funding is slashed, hospitals will be forced to close, and our community will suffer. I want to know if the Congressman will stand up for us. It’s about keeping our hospitals running and jobs in our communities.”

In Congressman Calvert’s district, where rural hospitals and clinics serve as lifelines for thousands of families, cuts to Medicaid would have devastating consequences. Rural hospitals, which operate on thin margins, depend on Medicaid reimbursements to keep their doors open. Without this funding, entire communities could lose access to emergency care, maternity services, and specialized treatments—forcing patients to travel long distances for critical care or, worse, go without it altogether. 

Medicaid has long enjoyed bipartisan support. More than 91 million Americans—nearly one in four people—depend on Medicaid for their healthcare. A recent Navigator Research poll found that 81% of Americans—including a majority of both Democrats and Republicans—oppose cuts to Medicaid. In recent years, voters in red states including Idaho, Missouri, Nebraska, Oklahoma, South Dakota, and Utah have voted to expand Medicaid access, recognizing the important role the program plays in keeping hospitals open and working families healthy.

This lobbying trip is part of a larger nationwide effort to oppose billionaire-driven efforts to slash federal programs like Medicaid (known as Medi-Cal in California) in order to fund tax breaks for the ultra-wealthy.

Any proposed cuts would not only jeopardize care for 15 million Californians who count on the Medi-Cal program, but would also threaten local hospitals and healthcare jobs, slash home care services that keep seniors and children with disabilities out of institutions, and raise healthcare costs for all Californians. 

The impact of cuts would bring disastrous results. Local nursing homes and home care programs could be decimated, potentially meaning more local families having to take over full care responsibilities for senior loved ones whose direct care facilities and home care programs could shudder. Most nursing homes and home care programs already operate on slim margins, and cuts to Medi-Cal could be a death knell. 

Caregivers also warned that residents would have to get sick enough to go to the emergency room before they could access basic medical care, raising costs for everyone and clogging emergency rooms statewide. 

Taking money out of Medi-Cal is also expected to force private insurers to raise costs on commercial plans, putting further pressure and increased costs on all healthcare facilities, businesses, and consumers, whether they rely on Medi-Cal or not.

The Riverside County contingent is one of multiple groups from California and across the country heading to DC to object to threatened healthcare cuts, which billionaires are pushing Congress to act on quickly. The events are being organized and promoted by an emerging coalition of healthcare workers, patients, and community members dedicated to protecting Medi-Cal.

Hospitals, clinics, and nursing homes across California would be at risk of closing their doors and handing out pink slips if Congress slashes funding for the essential healthcare program. Cuts would also reduce access to home care services, forcing families with elderly parents or children with disabilities to choose between keeping their homes or putting their loved ones in an institution.

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The agreement for a $297.7-billion spending plan is the result of weeks of contentious negotiations with labor unions and business interests after weaker than anticipated revenues forced Newsom and lawmakers to scale back California’s progressive policy agenda. The shortfall inspired a tug-of-war over coveted state dollars that has caused rifts between the governor and some of his closest allies at the Capitol.

Among the more high-profile changes, the 2024-25 budget plan delays a minimum wage increase for healthcare workers until at least October, cuts $1.1 billion for affordable housing and slashes $750 million in funding for the state prison system.

California’s business community also took a hit with the three-year suspension of nearly $15 billion in tax breaks a year earlier than Newsom initially proposed.

“This agreement sets the state on a path for long-term fiscal stability — addressing the current shortfall and strengthening budget resilience down the road,” Newsom said in statement. “We’re making sure to preserve programs that serve millions of Californians, including key funding for education, health care, expanded behavioral health services, and combatting homelessness.”

The deficit marks a dramatic reversal of California’s financial standing from a projected $100-billion surplus two years ago and creates a challenging political narrative for Newsom, who often boasts of the state being an essential economic engine for the nation.

The governor is required by law to declare a statewide budget emergency before he can take money from the reserves to solve the deficit. But an emergency declaration gives fodder to critics who have accused Democrats of mismanaging the state’s finances and overspending.

Despite the shortfall, the California economy remains strong and the state has more revenue to spend than when he took office.

“This is not a revenue problem,” said David Crane, president of Govern for California, a nonprofit that seeks to oppose the influence of labor unions on state government. “The deficit is a result of expenditures.”

In April, Newsom touted the fact that the California economy held its position as the fifth largest in the world, saying the state “continues to punch above its weight.”

The state government’s financial problem can be blamed, in part, on poor revenue projections that led Newsom and lawmakers to allocate more money for programs than they had available to spend.

The state’s progressive tax structure leaves government dependent on revenue from income taxes paid by chief executives and other top Golden State earners, which are subject to stock market fluctuations and difficult to predict. The delay of the 2022 tax filing deadline, from April to November, also forced California leaders to craft the current budget without having a full understanding of how much state tax revenues had dropped.

Newsom anticipated California’s deficit to grow when he signed the budget last year and said he dedicated much of the new money in his spending plan to one-time funding increases that he could easily halt if revenue fell. The cuts include $500 million for a loan program to fund affordable student housing at colleges and a reduction of $485 million for work study programs for students.

Yet the governor and lawmakers have been criticized for choosing to pull money from the state’s rainy-day fund — $5.1 billion in 2024-25 and $7.1 billion planned the following year — to avoid deeper cuts. Democrats also plan to take $900 million from a safety net reserve account next year.

Tapping into the state’s piggy bank now has raised concerns about what could happen to state programs serving California’s neediest if the economy falls into recession and state revenues drop even lower.

Democrats at the state Capitol released a broad overview of some of the cuts the Legislature will vote on next week before the budget takes effect on July 1.

Newsom and lawmakers said the agreement includes proposed legislation requiring the state, in the future, to set aside surplus funds for subsequent budget years as a means to protect against the revenue swings and a constitutional amendment in 2026 to grow the state’s rainy-day fund. Details were not shared with the announcement.

Here’s what we know so far about the agreement:

Pushing off a healthcare minimum wage hike

Newsom signed a bill into law last year to give healthcare workers a minimum-wage increase to $25 per hour. He waited a few weeks to explain that he wouldn’t allow the law to take effect if the state budget crisis worsened.

At the time, the Department of Finance estimated that the law could cost the state $2 billion. Labor unions said the cost was closer to $300 million, if the state required hospitals to cover much of the cost.

Newsom’s concerns, which he said he shared with unions before he signed the law, set off months of private negotiations over when to raise wages and how to pay for the increase.

Those talks finally ended with the budget agreement, which delays the pay hike from taking effect until Oct. 15 at the earliest, instead of this month as originally planned.

The start date for the pay hike hinges on one of two scenarios: state revenues in the first quarter of the fiscal year coming in 3% above projections, or more federal funding for hospitals through a quality-assurance fee. If neither happens, the increase could be delayed beyond October.

Lawmakers and the governor are essentially using the quality-assurance fee as a mechanism to assure hospitals can pay for the increase. Hospitals pay quality-assurance fees, the federal government matches the money and then remits the funding back to hospitals.

The federal increase requested by the state is expected to cover 30% of the cost of the higher wages for hospitals.

The budget pegs the state cost for the program at $600 million in 2024-25.

No solution on battle over MCO tax

The question of how to use the proceeds of a tax on managed care organizations, known as the MCO tax, turned out to be the most difficult to answer in budget negotiations. So challenging, in fact, that talks fizzled out and Newsom threatened to oppose a ballot measure backed by some of his closest allies.

The tax applies to health insurance providers that charge fixed monthly payments for services and acts as a mechanism to allow California to collect billions in additional federal funds for Medi-Cal, California’s healthcare system for low-income residents.

Newsom and lawmakers renewed the tax last June and agreed to use some of the proceeds to raise reimbursement rates to providers who serve Medi-Cal patients. For years, doctors have waged an unsuccessful campaign to raise rates, arguing that the reimbursements are too low, result in a shortage of doctors willing to accept patients and restrict access to care.

But Newsom reversed course and proposed taking more than $6 billion from the Medi-Cal rate increases over multiple years and using the funding instead to avoid cuts to the program.

The change pitted Newsom against a coalition led by the California Medical Assn. and Planned Parenthood, two groups that have supported the governor’s causes and backed his campaigns.

The coalition called for the governor to stick to the agreement he made in 2023 to raise rates for providers. They also are leading a charge to pass a measure on the 2024 ballot that would permanently establish an MCO tax to fund higher reimbursement rates.

The governor wants the coalition to take the measure off the ballot. He wants the funds to be flexible so the state can use the money if necessary to support the Medi-Cal system in the future.

The coalition has so far declined to take the measure off the ballot, afraid Democrats would divert the funding again. The talks ended in a stalemate.

The final state budget includes $6.9 billion next year to support the Medi-Cal system.

Newsom and lawmakers agreed to offer a smaller pot of money for “provider rate increases and investments” from the MCO tax, but far less money than was previously set aside. The budget includes $133 million in 2024-25 and a plan to raise that to $728 million in 2025-26 and $1.2 billion the following year.

Democrats said the MCO funding would become “inoperable,” essentially eliminated, if the measure is approved on the 2024 ballot.

The governor threatened to campaign against the measure as the talks soured, setting up the possibility that Newsom could challenge his supporters in the November election.

A pause on business tax breaks

The budget deal limits total tax credits for businesses in the state to $5 million per filer and pauses a net operating loss tax deduction for businesses with income of more than $1 million in 2024, 2025 and 2026.

In a concession to the business community, Newsom and lawmakers are allowing companies to receive refunds for the tax credits after the limits end.

Newsom originally proposed halting and capping the tax breaks beginning in 2025. But Democrats in the Legislature pushed to apply the changes a year earlier, allowing them to avoid cuts to other programs.

The administration said the changes to the tax breaks will increase revenues by nearly $15 billion through 2026.

The early start could hurt businesses who were planning to deduct losses from their 2024 taxes and now have to scramble to scale back on employees or inventory to cover the cost of an unexpectedly higher bill. The limit also marks the second time in five years that the state has capped tax credits, which could turn away companies that operate in California.

Big cut to prisons

Lawmakers previously proposed an additional $1 billion in cuts to the Department of Corrections and Rehabilitation, which included at least $12 million in reductions to the governor’s project to transform San Quentin. Newsom’s proposed cuts had included $80.6 million in savings from the newly announced deactivation of 46 housing units at 13 state prisons.

The final agreement drops funding for corrections by $750 million total, including cuts to operations and savings from eliminating vacant jobs.

Newsom supports another round of homelessness grants

In late May, Democrats in the Legislature proposed spending $1 billion more than the governor had budgeted on a sixth round of Homeless Housing, Assistance and Prevention grants to local governments to combat the homelessness crisis. At the same time, lawmakers proposed cutting $100 million in funding to clean up homeless encampments in the current budget year.

The final budget deal appears to show a compromise.

The deal includes $1 billion in additional homelessness grants, which the governor and lawmakers said would be tied to new accountability measures to make sure local governments use the funding appropriately. The agreement also provides $150 million next year for encampment grants.

Broadband internet access for all — a little later

The pandemic exposed the need to improve access to broadband internet in homes across California when K-12 education shifted from the classroom to remote learning. Low-income families and those who live in rural areas often lack the same connectivity as more wealthy communities.

Newsom has sought to make internet access more equitable under a “broadband for all” initiative.

The spending plan delays $550 million in funding for “last mile” work, which connects the network to homes, until the 2027 budget year. The budget agreement still offers $250 million next year for a program to expand and improve the fiber-optic network under “middle-mile” projects, and Democrats intend to provide a total of $2 billion for last-mile work over multiple years.

A funding delay for public schools

Under Proposition 98, approved by voters in 1988, California has a minimum funding guarantee for schools and community colleges.

Earlier this year, Newsom proposed an unusual maneuver to go back and recharacterize funding in 2022-23 to reflect the lower-than-expected state revenue.

The California Teachers Assn. said the change would have ultimately reduced funding for schools by about $12 billion over two years. The union ran a television ad criticizing Newsom’s proposal to pressure him to reverse course.

Newsom and teachers ultimately agreed late last month to a complicated solution that suspends the minimum funding guarantee and delays $5.5 billion in funding until future years.

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