Californians to pay billions of dollars more in taxes

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(The Center Square) – New or increased taxes in California will cost the Golden State’s taxpayers billions of additional dollars after the Legislature approved hikes in certain taxes during this year's session, which ended Tuesday.

“The tax burden in California is already very, very high – among the highest state taxes of any state in the country,” Susan Shelley, vice president of communications for the Howard Jarvis Taxpayers Association, told The Center Square on Thursday. “We have the highest state sales tax, the highest income tax rates. We have more tax increases on the November ballot on the local and state level. So this is a difficult environment for taxpayers.”

Billions of dollars in projected tax revenues are expected, according to numbers obtained by The Center Square.

Democratic lawmakers on taxation and revenue committees in the state Legislature, as well as groups that supported the passage of some of the taxes that went up this year, did not respond to The Center Square before press time. Democrats control a supermajority of the Legislature as well as the governor's office.

Gas tax

One of the taxes that already went up earlier this year was the state’s gas tax. According to previous reporting by The Center Square, the state’s gas tax goes up annually under a 2017 law. The revenue generated by the tax pays for roads, bridges, highways and public transportation.

This year, the gas tax went up 2.2 cents, bringing the tax to 63.4 cents a gallon. On the day before the gas tax went up on July 1, the average price of a gallon of gas in California was $5.43, above the national average that day of $3.85 a gallon.

The gas tax was expected to generate $327 million in 2026, according to a budget analysis from the California Senate Republican Caucus.

Digital software tax

Starting on Jan. 1, 2027, the state’s already-existing sales and use tax will include digital software. The tax will generate $450 million revenue in fiscal year 2026-27 and $900 million each year afterward. The money is meant to help pay for education funding and healthcare services, according to previous reporting by The Center Square.

“The software tax expands the tax burden and will worsen the business climate even more. Small businesses will be particularly hard hit,” said Wayne Winegarden, senior fellow in business and economics at the Pasadena-based Pacific Research Institute.

"The answer to California's fiscal problems is spending control and demanding the government do better with less," Winegarden told The Center Square via email on Thursday. 

Managed care organization tax

Senate Bill 125 implements a tax on managed care organizations to shore up Medi-Cal funding in light of cuts imposed by the federal government’s budget law - H.R. 1, otherwise known as the One Big Beautiful Bill Act. The cut in federal funding for Medicaid, known as Medi-Cal in California, is offset by the managed care organization tax. That tax charges an $8.85 tax per enrollee each month who gets their health insurance through managed care organizations.

According to a budget analysis from the Legislative Analyst’s Office, the managed care organization tax stands to generate roughly $2 billion to help increase funding for Medi-Cal health plans.

The tax would generate $575 million in fiscal year 2026-27, $2.3 billion in 2027-28 and $1.7 billion in 2028-29, according to that analysis.

It is not clear if managed care organizations would pass along all of those costs to policyholders.

“Sacramento looked at California’s sky-high cost of living and decided it wasn’t high enough,” Sen. Suzette Martinez Valladares, R-Santa Clarita, told The Center Square via email on Thursday. “That’s not affordability. That’s another bill for working families. We need leaders cutting costs, not inventing new ways to charge you.”