California Governor Gavin Newsom has approved a state budget that includes what has been described by the California Taxpayers Association as the largest tax increase in the state's history. The measures, passed in late June, introduce two new taxes aimed at offsetting losses in federal revenue and funding state health programs.

One key component of the budget is an extension of a tax on healthcare providers, projected to generate approximately $2 billion annually to support Medi-Cal, the state’s Medicaid program. This tax is expected to lead to higher health insurance premiums, with private insurance plans potentially seeing increases averaging around $100 per individual annually, or about $400 for a family of four. The increase reflects insurers passing on the added costs to policyholders.

The healthcare tax has drawn significant criticism from Republican lawmakers. Senator Roger Niello described the budget as detrimental to both job creators and workers, arguing that increased government spending has not led to improved quality of life for Californians over the past decade. Republicans have also urged the federal Centers for Medicare and Medicaid Services (CMS) to block the healthcare tax, asserting it requires federal approval. Governor Newsom’s office has countered by pointing to the Trump administration’s policies, blaming last year’s changes at the federal level for necessitating the new tax. “This is Trump’s tax — thanks to his Big Beautiful Betrayal,” the governor’s spokesperson stated on social media.

The second tax introduced by the budget expands California’s sales tax base to include “prewritten” software products, both downloaded and purchased. This measure is estimated to yield approximately $900 million annually. Given California’s base sales tax rate of 7.25%, local jurisdictions often add additional levies, resulting in total sales tax rates nearing 12% in some areas such as Lancaster and Palmdale. Consequently, consumers and businesses could face an added tax burden of around 10%, depending on their location within the state.

The software tax applies broadly to digital tools used by individuals and businesses alike. Products such as communication platforms including Slack, artificial intelligence assistants, creative software like Adobe, and tax preparation services such as TurboTax are all subject to this charge. Although much of the tax burden falls on business-to-business transactions, economic analysts warn that these costs may ultimately be passed onto consumers. Seth Kerstein, an economist with the nonpartisan Legislative Analyst’s Office, noted that taxes on business purchases can raise consumer prices indirectly and create inefficiencies that further increase costs.

Governor Newsom has stood by the budget and the associated tax measures, emphasizing the challenges posed by reductions in federal support under the previous administration. Lawmakers from both parties remain divided over the budget’s impact on the state’s economy and residents' financial wellbeing as implementation begins in the coming year.