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With a state budget that’s partially dependent on the income tax generated from stocks, Gov. Gavin Newsom’s administration is not surprised that California’s budget could take a hit from the tariffs imposed by President Donald Trump. Here’s more from CalMatters Capitol reporter Alexei Koseff:
H.D. Palmer, the spokesperson for Newsom’s Department of Finance, said the governor flagged all the way back in his January budget proposal that broad-based tariffs were the biggest potential risk to California’s economic forecast.
“Now that they’re in place, we’ll incorporate what we believe to be their effect,” Palmer said, though state officials are still consulting with outside experts, such as the UCLA Anderson Forecast, as they wait to see whether the Trump administration sticks with the tariffs and how other countries respond.
The tumbling stock market could take a significant bite out of the state budget next year, because California receives a disproportionate amount of income tax revenue from capital gains earned by the wealthiest taxpayers. That’s especially true with the steep valuation drops this week for major tech companies, many of which are headquartered in California.
The state, whose largest trading partner is China, is also worried about how the tariffs could weaken California’s large manufacturing and agriculture sectors, as well as tourism and major ports in Los Angeles, Long Beach and Oakland.
Palmer said the Department of Finance will finalize its economic forecast by the end of the month as the governor develops a revised budget proposal for May. Finance officials are modeling different scenarios, some of which would require spending cuts, but Palmer declined to share what programs could face reductions if the economy turns south.
- Palmer: “I don’t want to get into that game. That can just kind of inflame concerns that at the end of the day might not be warranted.”