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By Khaleda Rahman
National Correspondent
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California Governor Gavin Newsom struck a $351.7 billion budget deal with Democratic lawmakers for his final year as governor that was buoyed by a surge in tax revenue tied to the stock market success of artificial intelligence companies, even as voters prepare to weigh a ballot measure that seeks to tax the ultra-wealthy residents driving that windfall.
Newsom said revenues were $16.5 billion higher than projections in January, when he touted his revised budget proposal in May. The windfall was largely attributed to income tax collected on stock market gains related to the artificial intelligence industry, the Los Angeles Times reported.
That ultimately meant the state will be able to avoid the $2.9 billion budget deficit that was projected in January by tapping into the windfall, avoiding the major cuts that had earlier been under consideration.
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Even as California’s fiscal outlook has been improved thanks to taxes on wealth tied to the tech sector, voters will decide in November whether to impose a new one-time tax on the state’s billionaires that opponents (including Newsom) fear will drive the ultra wealthy to leave the state, taking the money they would contribute in income taxes with them.
Nearly half of California’s personal income tax revenue comes from the top 1 percent of earners in the state.
What’s In The Budget Deal?
The final deal, outlined by Newsom and lawmakers, includes fiscal guardrails aimed at stabilizing the state’s finances while continuing investments in major programs.
Key elements include:
- A balanced budget with no deficit for next two years, and setting aside $6.4 billion for future years
- Billion in funding for TK-12 schools, community colleges, and higher education
- Setting aside $900 million in funding for the Homeless Housing, Assistance and Prevention program
- $100 million for Disaster Rebuilding Fund
- Asks voters in November to approve raises the cap on California’s rainy day fund from 10 percent to 20 percent
- Approves a bond for the November ballot to generate $11.25 billion for affordable housing
- Safeguarding and speeding up elections, including $29 million to help with staffing increases, equipment upgrades for counties to speed up vote counting
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“A balanced budget isn’t an end in itself—it’s how we deliver for Californians,” Newsom said in a statement. “This budget demonstrates responsible choices that protect our fiscal strength while continuing to invest in what matters most.”
Senate President pro Tempore Monique Limón said the agreement “reflects our commitment to protect core programs and address our short and long-term financial future by building up our rainy day fund and making responsible budgeting choices.”
Billionaire Tax On The Ballot
Aa ballot measure that would impose a tax on billionaires in California will be on the ballot in November.
If approved, it would impose a one-time 5 percent tax on the assets of billionaires living in the state as of January 1, 2026. The goal is to generate $100 billion in revenue, mainly to fund the state’s Medicaid system after federal cuts.
The Service Employees International Union‑United Healthcare Workers West (SEIU-UHW), the health care workers' union that filed the initiative, argue it would help to offset looming financial pressure as a result of healthcare cuts in President Donald Trump's One Big Beautiful Bill Act.
But Newsom and other traditional allies of the union oppose the measure, arguing it is a temporary fix for an ongoing problem and that it would drive billionaires out of the state.
Newsom's press office told Newsweek that the governor "has been clear that he is not in support of a wealth tax, but supports California's progressive tax system, which doesn't punish those residents who make the least—unlike states like Texas and Florida [that] punish their lowest earners by taxing them far more than their highest."
The proposal has also drawn fierce opposition from many of California's wealthiest residents, some of whom have already spent millions of dollars to defeat it or fund rival initiatives, according to the Los Angeles Times.
PayPal and Palantir co-founder Peter Thiel—who has a net worth of $27.9 billion, according to Forbes—donated $3 million to the California Business Roundtable, which opposes the billionaire tax in December, the Times reported. Former Google Chief Executive Eric Schmidt—who has a net worth of $40.6 billion, per Forbes—donated $1 million to the same group in March.
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Newsom Fights State Measure, Calls for National ‘Billionaires' Tax’
Newsom, a Democrat who is weighing a run for president as his term nears an end, has been one of the most prominent critics of the measure, arguing that it would drive billionaires out of California and erode the state’s tax base over the long term for a one-time influx of cash.
In a Substack post on Friday, he said it was “time for an economic reset” as he called for a national “billionaires’ tax.”
The “fight to make the wealthiest Americans pay more in taxes is not one we should be fighting state by state,” he wrote. “You may not be able to pick up and move to Texas or Florida to shelter your income from taxation, but I promise you that billionaires can, and do.
“Wealth is movable, and it shops for the state with the lowest taxes. The fight belongs at the federal level, where this broken system was created in the first place.”
Newsom called for a "true minimum tax on billionaires” as well as an end to loopholes that allow the wealthy to borrow against their stock portfolios to fund their luxury lifestyles tax free.
Odds of Billionaire Tax Passing
The odds of the proposal to tax California's wealthiest residents being approved by voters have ticked up since it was confirmed the measure would be on November ballot.
The prediction market Polymarket placed the chances of the proposal passing in November at 36 percent on Saturday, down from 40 percent at the start of the month though up from 20 percent a week ago.
Meanwhile, Kalshi, another prediction market, also currently places the chances of the measure passing at 36 percent, up from about 20 percent a week ago.
This article includes reporting by The Associated Press.
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