Governor Gavin Newsom recently indicated that California may consider withholding its federal tax payments if the Trump administration proceeds with planned funding cuts to the state.
This potential conflict reflects a broader and escalating tension between the state of California and the federal government, particularly amid ongoing disputes regarding the deployment of military forces to manage protests against immigration enforcement in Los Angeles.
However, the logistics and implications of withholding tax payments from the federal government remain unclear.
Tax experts consulted by CalMatters have described Newsom’s comments as a vague threat and have pointed out that state residents and businesses directly pay their taxes to both the state and federal governments when they file their income taxes.
This raises the question of what specific tax contributions California could realistically withhold from the federal government.
According to Tara Gallegos, a spokesperson for Governor Newsom, the administration is exploring potential strategies that might allow California to retain some funding typically transferred to the federal government.
However, she did not provide any additional details about those options or which advisers are examining the issue.
California’s primary revenue sources include personal income tax, corporate tax, and sales tax, with sales tax revenue allocated to local and state authorities.
Additionally, the state does not manage certain excise taxes that the federal government collects, such as those from transportation and airports, as confirmed by the state’s Finance Department.
Governor Newsom has been vocal about California’s status as a “donor” state, highlighting that it contributes significantly more in federal taxes than it receives in return.
Gallegos reiterated this point, noting California taxpayers contribute tens of billions of dollars more annually to the federal government than they receive back.
Research conducted by the Rockefeller Institute of Government revealed that California sent approximately $83 billion more to Washington than it received in fiscal year 2021-22, a figure nearly three times that of New Jersey, which ranked second with a $29 billion disparity.
Furthermore, taxpayers from California provided the highest total federal tax contributions of any state, with figures amounting to $806 billion for fiscal year 2023-24.
By contrast, Texas contributed $417 billion, and New York contributed $384 billion during the same period.
California Assembly Speaker Robert Rivas also expressed support for exploring all available options, including the possibility of withholding tax payments.
Rivas emphasized California’s role as an economic powerhouse and a major donor state that deserves equitable treatment.
While this assertion is echoed by many, some critics question the validity of the ‘donor state’ label.
Jared Walczak, vice president of state projects at the Tax Foundation, a conservative think tank, expressed skepticism over California’s claims.
He argued that the complaint about a donor state status is undermined unless California politicians are willing to question the validity of major federal programs like Medicare, Medicaid, and Social Security.
According to Walczak, courts have clearly established that one cannot simply opt out of tax obligations.
On the other side of this debate, White House spokesperson Harrison Fields confirmed that the Trump administration is actively reviewing significant funding cuts to California.
However, he noted no final decisions have been made and refrained from specifying which programs might face defunding.
The White House has faced difficulties executing funding cuts in similar situations in the past.
A memo from the Office of Management and Budget, aimed at freezing hundreds of billions in federal grants and loans, was rescinded following intense public backlash and legal challenges.
California’s Finance Department spokesperson, H.D. Palmer, emphasized that the legislative power regarding federal funding resides with Congress.
Palmer pointed to a list of critical programs benefiting from federal funding that the state relies on in its budget, which includes funding for health care, education, highway construction, disaster recovery, and food assistance programs.
The most substantial allocation is roughly $100.9 billion allocated for medical assistance programs.
Palmer also mentioned an important question that remains unanswered by federal officials regarding the rationale behind potentially withholding funding from California: ‘What public policy benefit are you seeking by withholding these federal dollars from California?’
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