California is facing a serious budget threat. According to a recent warning from Governor Gavin Newsom’s financial team, the state could lose up to $16 billion in tax revenues in the next fiscal year due to former President Donald Trump’s trade policies.

🔹 Governor Newsom openly calls it a “Trump crisis” that has slowed down the economy and negatively impacted state finances.

🔹 The losses come on top of an already existing $27 billion budget shortfall.

🔹 Trump’s tariffs have triggered a stock market sell-off and reduced capital gains, which are a major revenue source for California.

A Closer Look at the Revenue Shortfall

According to a memo released on Tuesday, state revenues are expected to fall by 4% compared to previous projections for the fiscal year starting this July. The anticipated drop breaks down as follows:

🔹 Capital gains tax – down $10 billion,

🔹 Corporate income tax – down $2.5 billion,

🔹 Personal income tax (from wages and business profits) – down $3.5 billion.

The memo states that the impact of Trump’s tariff plan began to hit California’s revenues in 2025, undermining the strong cash flow that the state had seen earlier in the year.

Markets Up, But Uncertainty Remains

Interestingly, despite the projected revenue decline for the next fiscal year, California still managed to collect $6.8 billion more than expected in the current fiscal year ending in June. This was helped by a recent rally in U.S. stocks.

Investor sentiment also received a boost from a recent agreement between the U.S. and China, where both sides temporarily lowered tariffs—a move that may calm market fears, but California remains cautious.

California Takes Trump to Court Over Tariffs

The state of California hasn’t stayed quiet. It filed a lawsuit against Trump, arguing that he did not have the authority to impose tariffs unilaterally without congressional approval. On Tuesday, state prosecutors said they would seek a preliminary injunction to freeze the tariffs while the case proceeds.

Budget Reality: Cuts and Reserve Withdrawals

California’s budget is heavily dependent on its wealthiest households. The top 1% of earners pay nearly half of all personal income taxes, and much of that comes from capital gains, which are closely tied to stock market performance.

To address the looming shortfall, the state plans to:

🔹 cut $16.1 billion in spending,

🔹 withdraw $7.1 billion from its rainy-day fund,

🔹 and make additional reductions to meet its constitutional obligation to balance the budget.

This means that California will be forced to cut spending for the third consecutive year, now on an even larger scale.

🌐 One-Minute Summary

California could lose up to $16 billion in annual tax revenues due to Trump’s tariffs. Governor Newsom blames the former president’s policies for economic damage and is taking legal action. The state is preparing for more spending cuts to meet its balanced budget requirement.

❓Did You Know?

The wealthiest 1% of Californians pay almost half of all personal income taxes in the state?


#TRUMP , #Tariffs , #TradeWars , #TradingCommunity , #worldnews


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