Gavin Newsom’s Dilemma: Tax the Rich or Defy the Left?

SACRAMENTO, California — Governor Gavin Newsom faces escalating pressure from labor unions and progressive lawmakers to raise taxes on the state’s wealthiest residents and multinational corporations to close a projected multibillion-dollar budget shortfall. The dispute is shaping up as a pivotal test for Newsom’s political future: balance the budget and placate business allies, or accede to the left and risk alienating moderates and corporate supporters ahead of a potential presidential run.

The Political Stakes

Labor groups have proposed a ballot measure to tax California’s richest residents and circulated another to make a prior income-tax increase permanent. They are also in early talks with progressive legislators about additional revenue measures aimed at multinational companies. Supporters say the moves are needed to stabilize state finances — and to blunt federal policies they say would harm vulnerable Californians.

“If he decides to run for president, he can say California has a really strong economy, in many ways it’s the envy of the country,” said Jim Wunderman, a Newsom ally and longtime business coalition leader. “As governor I held the line many times under great pressure to raise taxes, which should give some comfort to voters that as president he’s not just going to willy-nilly raise taxes.”

Pressure From The Left

Progressives argue this is an opportunity for Newsom to side with working-class Californians — some of whom shifted toward Republicans in recent elections — by protecting programs such as universal health coverage, expanded early childhood education, and a $25 health care wage. Alex Lee, a state lawmaker who chairs a bloc of progressive Democrats, warned: “If you're seen as a defender of billionaires that's going to hurt you down the line.”

Business Concerns And Fiscal Risk

Business leaders and many moderates counter that raising taxes on high earners or corporations could worsen an already precarious business climate and push firms or wealthy residents to lower-tax states — a concern heightened by recent corporate relocations out of California. Newsom has repeatedly expressed wariness about measures such as a proposed wealth tax and has emphasized California's dependence on revenue tied to a small number of high-earning companies.

“You have 10 percent of people that own two thirds of the wealth in this country,” Newsom said in an interview with the San Francisco Standard. “We talk about the economy and we talk about the stock market. And of course in the aggregate, California is the biggest beneficiary.”

Budget Reality And Precedent

California’s tax system concentrates revenue among very high earners, creating boom-and-bust cycles: large surpluses can quickly turn into steep shortfalls. The state budget now exceeds $320 billion, and Newsom has both supported and opposed different revenue measures — suspending some tax breaks, increasing taxes on guns and ammunition, endorsing a 2020 commercial property tax measure, but resisting direct levies on the ultra-wealthy.

What’s Next

Newsom will release his preliminary budget in January, with a final budget due by a June deadline. He must weigh short-term fixes and long-term political consequences: prioritize a balanced ledger and risk progressive ire, or accede to labor demands and risk alienating business allies and moderates ahead of any national ambitions.

Bottom line: The decision will influence California’s finances, the fate of major social programs, and Newsom’s standing with both the Democratic base and potential general-election voters.