Gavin Newsom goes on defense over California Democrat’s wealth tax. Why it’s a political move

When Gov. Gavin Newsom railed during his budget presentation this week against “shameful” suggestions from the Wall Street Journal editorial page that he would support a tax on wealthy Californians, he also could have been speaking to the national audience he’s been wooing for months.

The effort to institute a state tax on ultra-millionaire and billionaire constituents’ net worth was going nowhere. Hours after Newsom spoke, state lawmakers promptly shelved the measure with little discussion.

The plan did draw a critique from the Journal, regarded as a leading voice of conservative thought. And Newsom for months has actively, aggressively courted this kind of attention.

Analysts said Thursday that Newsom’s anger as he unveiled the budget at Wednesday’s news conference was transparently political, as he seeks to stave off a perception of the state as one that overtaxes its residents.

His frustration at the Journal editorial was also likely also meant for the state lawmaker who proposed the tax, as well as the legislative leader who allowed it to be heard on the same day as his budget announcement.

Newsom spokesman Brandon Richards declined to comment further, saying the governor’s statements on Wednesday were “pretty clear and comprehensive.”

All the outrage reflected a predicament Newsom faces as he balances his national ambitions with the realities of working with progressive legislators. Some budget-watchers would like to see the governor consider some tax-related solutions as he works to fill a $38 billion spending gap.

“I think — in a period where you’re facing a significant shortfall, and you’re having to roll back some essential services — you should be at least having a conversation about every tool in the toolbox,” said Chris Hoene, executive director of the California Budget and Policy Center. “Before you actually just shut it down and say, ‘No, we’re not going to do some of the stuff.’”

Lawmakers shelve wealth tax

Newsom presented a $291 billion fiscal 2024-2025 budget that seeks to reduce the state’s large budget deficit by dipping into reserves and cutting and delaying spending.

Ahead of Newsom’s announcement, Assemblyman Alex Lee, D-San Jose, learned the Assembly Revenue and Taxation Committee would hear his wealth tax measure, Assembly Bill 259, shortly after the governor unveiled the budget.

Lee’s bill would add a 1% tax on the net worth of residents with more than $50 million in assets. Those with more than $1 billion would be taxed at a higher 1.5% rate. The current top income rate is 13.3% for millionaires.

The hearing attracted attention because Lee’s bill did not make it that far last year. But new Assembly Speaker Robert Rivas, D-Hollister, has taken a different approach to working with committee chairs. Instead of giving them complete freedom to decide which bills gets hearings, he “believes legislation introduced in good faith deserves an opportunity to be heard,” said Cynthia Moreno, a spokeswoman for the speaker.

This prompted news coverage and a Wall Street Journal editorial headlined “California’s wealth tax arrives,” complete with a photo of Newsom right below it.

Only Assemblyman Joe Patterson, R-Rocklin, and Chair Jacqui Irwin, D-Thousand Oaks, spoke during the committee hearing for AB 259.

Irwin expressed concern the bill would drive away the wealthy Californians needed to support the state’s progressive tax structure.

“We must act with a degree of fiscal prudence and seek to reduce volatility in our revenue streams,” she said.

Irwin quickly placed AB 259 on the committee’s little-known suspense file and then held it there, effectively killing the measure.

Newsom’s tax politics

Political experts say the bill and associated coverage so incensed Newsom mostly because he sees it as a liability in his quest to raise his national profile.

The governor last year created a political action committee to promote Democratic causes in more conservative states, embarked on a red state tour and debated Florida Gov. Ron DeSantis on national television. All of this has stoked a persistent belief that Newsom plans to run for president someday, although he has repeatedly denied it.

“If he were to support tax increases and run for president in 2028, that would be a leading Republican attack point,” said John Pitney, professor of politics at Claremont McKenna College.

Newsom has had “difficulty with the left” in the past over issues such as single-payer health care, which “caused him some heartburn because he realized that just wasn’t economically feasible for a single state to do,” Pitney said.

The governor during his 2018 campaign pushed for a single-payer system, but he has backed away from that promise during his time in office.

“This is another chapter of long story,” Pitney said. “In most places, Gavin Newsom would be considered a progressive. But by the standards of the California Democratic Party, he’s a moderate.”

The Wall Street Journal editorial page acts as “kind of a foil” for Newsom, said Kyle Kondik, managing editor of Sabato’s Crystal Ball, a nonpartisan political analysis firm.

“You could argue the message is directed both at the Wall Street Journal and also at his own Legislature,” he said. “It’s probably better to make the actual person who you’re attacking the Wall Street Journal, as opposed to your Legislature, but you’re sending the same message: it’s like, ‘I don’t support this.’”

Hoene of the Budget and Policy Center suggested Newsom might consider more under-the-radar revenue solutions, like suspending some corporate tax breaks and creating a more equitable structure that could generate funds from companies with bigger profits.

For example, Senate leaders last year supported instituting a graduated corporate tax system that would raise taxes on the highest earning companies and cut them for lower earners.

“They basically had a banner five or six years where their profits have gone off the charts, no matter what other circumstances are making life difficult for other folks in California,” Hoene said.

“So there’s an actual political rationale to be making the case of like, look, we need to ask those really thriving corporations to do a little bit more in order for the state to be able to continue to make some progress for people who who aren’t doing that well and are struggling to get by.”