Overview
- Gov. Gavin Newsom, presenting the May Revise on Thursday, said the state’s updated two-year plan balances this year and next and holds projected deficits at zero through July 2028.
- Higher-than-expected taxes tied to stock gains and AI wealth produced a $16.5 billion windfall, and the plan steers $9.7 billion into a Surplus Holding Account while keeping nearly $30 billion in total reserves.
- The proposal adds new revenue measures that include a 7.25% state sales tax on digital software starting Jan. 1, 2027, and caps on large corporate tax credits, alongside a three-year cut in LLC fees for new small businesses.
- Spending priorities include $300 million to stabilize Covered California after federal subsidy cuts, a $2.4 billion ongoing boost for special education, a $5 billion education block grant, and a $100 million wildfire rebuilding fund.
- Nonpartisan analysts and Republicans warn the approach leans on volatile capital-gains taxes in a system where about 1% of earners supply roughly half of income-tax revenue, and the plan now heads into negotiations before the June 15 budget deadline.