At the start of the year, many migrants arriving at California’s southern border seemed like a big problem. However, it became just one of many issues for Governor Gavin Newsom and the state’s Democratic leaders. They also had to deal with insurance companies leaving the state, raising the minimum wage for some businesses, and handling a huge budget deficit. These issues are putting a lot of pressure on California’s leaders and could have long-lasting effects on politics in the state.
House Insurance Problems
Since the beginning of the year, two insurance companies have either reduced their activities or left California. American National from Texas announced it will stop selling home insurance by autumn, and won’t renew policies starting in August. State Farm General from Illinois also said it won’t renew insurance for 30,000 houses and 42,000 businesses.
Earlier this month, Newsom proposed a budget plan that includes higher house insurance prices. Californians already pay some of the highest rates in the country. Newsom said this is necessary to stabilize the market and make home insurance more available. Supporters believe that despite higher costs, more insurance options will help residents avoid relying on California’s “FAIR Plan,” which is the state’s last-resort insurance.
Budget Deficit and Spending Cuts
Newsom faced a big budget shortfall, initially projected to be over $70 billion but later revised to $27.6 billion. This reduction was achieved through spending cuts, canceling grants and programs, and shelving many policies Newsom had supported. Newsom assured that the gap wouldn’t be managed by raising taxes on workers or businesses, but a new report suggests otherwise.
Hidden Tax Increases
A study by the California Taxpayers Association (CalTax) suggests Newsom’s budget plan might include hidden tax increases on businesses, totaling around $18 billion over the next four years. Newsom proposed that companies making over $1 million shouldn’t deduct their net operating losses and wants to cap business tax credits at $5 million for 2025-2027. This measure could raise corporate tax revenues by $15.9 billion.
Repatriated Income
Newsom’s plan also involves changing how repatriated income is handled. A recent decision by the Office of Tax Appeals sided with Microsoft, resulting in a $94 million refund for the company. This decision could save millions for other companies, but Newsom’s proposal aims to reverse this. His plan would affect tax years retroactively and moving forward.
CalTax argues that the only risk is to companies that overpaid their taxes and are now facing additional hurdles due to legislative changes.
Spending Cuts
Newsom also proposed significant spending cuts that would impact immigration, education, and childcare support for low-income parents.
Political Impact
These challenges could affect Newsom’s popularity among voters, as he is expected to run for president in 2028.