Governor Gavin Newsom’s office dropped a bombshell on Tuesday, claiming that President Trump’s tariff policies are set to drain a whopping $16 billion from California’s revenue by next year. Despite personal income tax and corporate tax receipts in the state soaring $6.8 billion above projections through April, Newsom’s administration is foreseeing a bleak financial outlook from January 2025 to June 2026 due to the economic repercussions of Trump’s tariffs. Dubbed the “Trump Slump” by Newsom’s team, this revelation comes just ahead of the unveiling of his revised 2025-26 state budget plan, as the governor looks to point the finger at the president for the anticipated revenue shortfall. No additional figures about the state budget have been disclosed by Newsom’s office, leaving many questioning the true extent of the financial impact.
The governor is expected to announce a deficit for California in the upcoming year, with Medi-Cal costs surpassing initial estimates, including the implementation of his ambitious initiative to offer free healthcare coverage to low-income undocumented immigrants. This new shortfall adds to the existing $27.3 billion in financial adjustments already agreed upon by lawmakers and the governor for 2025-26, which includes $16.1 billion in cuts and a $7.1 billion withdrawal from the state’s rainy day fund. This deficit marks the third consecutive year that Newsom and lawmakers have been compelled to trim spending after allocating more funds to programs than the state can feasibly afford. Poor projections, escalating costs of Democratic policy commitments, and a reluctance to make significant long-term cuts have all contributed to the deficit at a time when California prides itself on being the fourth-largest economy globally.
Trump’s implementation of tariffs on all imported goods, along with increased taxes on products from Mexico, Canada, and China, as well as specific levies on items like automobiles and aluminum, in April has only exacerbated the situation. While the president has backtracked on some tariffs, Newsom is adamant that the ongoing policies and economic instability will result in heightened unemployment, inflation, reduced GDP projections, and diminished capital gains revenue for California. California recently filed a lawsuit arguing that Trump overstepped his authority in imposing tariffs, and now the state plans to push for a preliminary injunction to halt the tariffs in federal court. The future remains uncertain as California grapples with the financial aftermath of these tariff policies, leaving many residents and officials on edge about what lies ahead.
