Tax the rich or swing the ax? California low-wage earners hang in balance
AI-generated summary reviewed by our newsroom.
- Newsom budget avoids big cuts but accepts federal-driven safety-net losses.
- Advocates call for taxing wealthy to backfill H.R.1 cuts and preserve Medi-Cal.
- LAO and critics warn deficits begin in 2027–28 from delays and revenue gaps.
When California Gov. Gavin Newsom rolled out his January budget proposal for the fiscal year 2026-27, advocates for the poor voiced an immediate, if uneasy, sense of relief. The plan didn’t arrive packed with fresh, headline grabbing cuts.
But relief is not a strategy.
As federal policy sharply curtails safety net supports — costing California an estimated $30 billion a year in Medicaid funding and up to $3.7 billion annually in food assistance — states are being forced to decide how much harm they are willing to absorb and how much they are prepared to prevent.
In California, where millions rely on safety net programs to survive, health clinics, anti-hunger coalitions and other advocates for low-wage earners say state leaders must “leverage the tremendous wealth in this state” to prevent large-scale losses of health coverage and food assistance, as federal cuts take effect.
These advocates are calling for targeted taxes on the state’s ultra-wealthy and on highly profitable corporations, along with ending costly tax breaks, to backfill federal cuts to Medi-Cal, CalFresh and other public assistance programs.
The stakes extend beyond fiscal math to people’s lives, advocates said, and state leaders have yet to propose concrete plans to bridge the gap for the state’s most vulnerable families.
“The deepest cuts to Medi-Cal in a generation threaten to strip life-saving access from our immigrant community, seniors, children, working families and those in the fight of their lives against cancer — unless California acts now to leverage the tremendous wealth in the state to provide sustainable, long-term funding to protect access to care,” said Kiran Savage-Sangwan, executive director of the California Pan-Ethnic Health Network.
Laura Sheckler, director of budget advocacy and strategic policy at the California Primary Care Association, described the state’s posture as an accounting choice with human consequences.
“This budget is really just absorbing and incorporating all of the losses we anticipate from H.R. 1,” Sheckler said, arguing that it is “accepting that millions of Californians will fall out of coverage.”
Across multiple states, labor and community coalitions are urging governors to pursue “tax the rich” policies to recoup public dollars lost in the federal H.R. 1 spending plan. At a news conference last week, members of one network pointed to states like Massachusetts as proof of this concept.
A clash of diagnoses — and prescriptions
Not everyone agrees that raising revenue is the answer.
In a blog post about the budget proposal, Wayne Winegarden of the Pacific Research Institute argued that California’s problem is fiscal management, not insufficient resources. He pointed to a widening gap between the administration’s projected $3 billion deficit and the Legislative Analyst’s Office estimate of $18 billion, attributing the discrepancy to overly optimistic revenue assumptions.
Historically, Winegarden noted, state spending excluding federal funds averaged about 8.1% of Californians’ total personal income — a benchmark economists use to gauge how large government commitments are relative to the overall economy.
But that statistic is closer to 9% today, Winegarden said, meaning the state is devoting a larger share of residents’ incomes to ongoing programs, leaving less flexibility when revenues fall. Because California relies heavily on taxes paid by high-income earners and capital gains, he warned, revenues can drop faster than spending during market downturns, forcing abrupt cuts or budget maneuvers.
From Winegarden’s perspective, that dynamic makes new revenue proposals counterproductive.
“We talk about eliminating poverty. We want to create jobs,” he said. “That’s the best way to eliminate poverty: Increase prosperity to grow jobs. The problem with the revenue solutions people talk about is that they become self-defeating, because we’re undermining the foundations of where we get prosperity.”
The LAO, California’s nonpartisan fiscal referee, offered a picture that both reinforces and complicates the debate in its assessment of the Newsom budget plan.
It is “roughly balanced” under optimistic assumptions, LAO staff warned, but they warned of a structural deficit that persists even as revenues rise. Both the administration and the LAO project multiyear operating deficits beginning in 2027-28.
That diagnosis is shared by state Senate Budget Committee Vice Chair Roger Niello, R-Fair Oaks, who called the combination of rising revenues and rising deficits “alarming.”
“Expenditures are increasing more than revenues,” Niello said. He urged lawmakers to evaluate programs expanded over the past four to five years to assess effectiveness and sustainability before proposing cuts, noting that lawmakers lack sufficient program-level analysis to act responsibly.
How California got here
The LAO also cautioned that the governor’s main budget tools, including delaying school payments and suspending reserve deposits, reduce the state’s fiscal resilience rather than strengthen it.
Two years ago, the LAO released an analysis showing that California experienced roughly $202 billion in revenue surpluses between fiscal years 2018-2019 and 2022-23, driven by capital gains federal pandemic aid and strong income tax collections.
Lawmakers used those surpluses to expand services across government, particularly in health and human services. While much of that spending was one-time, ongoing commitments also rose sharply and remained as revenues cooled.
That history complicates claims that today’s shortfall is purely federal, and it also raises questions about whether the state will defend safety-net gains made during boom years.
That tension is evident in responses to the governor’s budget plan.
The Food4All coalition acknowledged Newsom for maintaining a planned expansion of the California Food Assistance Program for residents 55 and older regardless of immigration status but also warned the proposal excludes younger adults and fails to mitigate CalFresh losses for humanitarian immigrants.
The California Department of Social Services has estimated 74,000 CalFresh recipients will lose food assistance due to federal eligibility changes starting April 1.
Health advocates warned parallel impacts. The Fight for Our Health campaign cited rising premiums, layoffs and program closures, while the Save Our Dental Care Coalition called proposed Medi-Cal dental reductions “a direct attack” on patients.
The County Welfare Directors Association focused on eligibility systems, urging investment in county workers to reduce bureaucratic “churn” that pushes eligible people out of coverage.
Newsom’s administration emphasized caution, citing revenue volatility and dependence on high-income earners. Legislative Democrats have echoed those concerns, pointing to roughly $19 billion in projected reserves as a buffer.
The LAO agreed volatility is real but warned that delay itself is a risk, and in unusually blunt language, the office urged lawmakers to address the structural deficit now rather than deferring decisions to the May revise or next administration.
Advocates want a solution to the loss of federal revenue. Choosing not to propose new revenue, they argued, is itself a policy decision, one that effectively ratifies federal cuts and allows coverage losses to occur quietly through eligibility changes and administrative attrition.
Republican lawmakers have placed responsibility on Democratic leadership. Assemblymember Joe Patterson, R-Rocklin, called the governor’s proposal “unrealistic” and predicted “Republicans and Democrats alike will reject many of his proposals, just as they did last year.”
Facing potential losses of health care and food assistance, low-wage families around the state are witnessing a familiar stalemate. Democrats emphasize caution without offering a revenue plan. Republicans criticize spending with naming concrete reductions.
For voters, the question is no longer abstract: Who is offering a plan that matches the scale of the disruption now underway — and who is prepared to say plainly what that plan will cost, and who will bear it?
This story was originally published January 25, 2026 at 5:00 AM.
