President Donald Trump’s tariff policies are projected to cut California’s tax revenue by $16 billion in the next fiscal year, Governor Gavin Newsom’s finance department said in a memo.
The 4% drop in revenue from a previous estimate is largely due to a stock market downturn last month after the president announced his sweeping tariff campaign on April 2, according to the document provided by the governor’s office Tuesday. The estimated hit includes $10 billion from reduced capital gains, $2.5 billion from lower corporate profits and about $3.5 billion from decreased personal income tax receipts, including wages and business income.
But while Newsom is calling the expected drop in revenue a “Trump Slump,” an upswing in the stock market could once again buoy the state’s coffers. The same day the memo was released, a rally powered by the world’s largest technology companies put US stocks higher for the year. The US and China announced on Monday that it will temporarily lower tariffs on each other’s products.
The memo, first reported by Politico, comes a day before the governor is slated to release his updated budget proposal for the fiscal year beginning in July. The revenue adjustments signal that the state will face its third consecutive fiscal year in which lawmakers need to plug significant holes. California is required by its constitution to balance its budgets.
California’s budget is highly sensitive to economic swings because it relies heavily on the state’s wealthiest residents, whose income, especially from capital gains, is closely tied to the stock market. The top 1% of earners contribute nearly half of all personal income tax revenue.
The 4% drop in revenue from a previous estimate is largely due to a stock market downturn last month after the president announced his sweeping tariff campaign on April 2, according to the document provided by the governor’s office Tuesday. The estimated hit includes $10 billion from reduced capital gains, $2.5 billion from lower corporate profits and about $3.5 billion from decreased personal income tax receipts, including wages and business income.
Trump’s tariff policies weakened the US and state economic outlook and led to equity market losses, said Newsom’s finance department, adding, “these factors had a direct negative impact on California tax revenues beginning in 2025 and reversed the positive cash trends seen to date.” Tax receipts for the current fiscal year ending in June are $6.8 billion higher than the governor’s previous forecast.
But while Newsom is calling the expected drop in revenue a “Trump Slump,” an upswing in the stock market could once again buoy the state’s coffers. The same day the memo was released, a rally powered by the world’s largest technology companies put US stocks higher for the year. The US and China announced on Monday that it will temporarily lower tariffs on each other’s products.
The memo, first reported by Politico, comes a day before the governor is slated to release his updated budget proposal for the fiscal year beginning in July. The revenue adjustments signal that the state will face its third consecutive fiscal year in which lawmakers need to plug significant holes. California is required by its constitution to balance its budgets.
California’s budget is highly sensitive to economic swings because it relies heavily on the state’s wealthiest residents, whose income, especially from capital gains, is closely tied to the stock market. The top 1% of earners contribute nearly half of all personal income tax revenue.
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