California’s business tax revenue didn’t just decline.

It didn’t just miss projections.

It collapsed.

We’re talking about a multi-billion dollar hole that opened up so fast that the governor’s office is scrambling to rewrite budget forecasts in real time.

This isn’t a slowburn.

This is an overnight implosion that’s forcing Gavin Newsome to confront a reality he’s been denying for years.

The businesses that fund California’s government are leaving, and they’re not coming back.

I’m Megan Wright and on this channel we cut through the spin and follow the money to find out what’s really happening.

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Do you think California can survive without its biggest taxpayers, or is this the beginning of a fiscal death spiral? Drop your answer below because I want to hear from you.

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Here’s the thesis.

California built a government so large, so expensive, and so dependent on a small number of high-income earners and profitable corporations that when those businesses and individuals started relocating to other states, the entire revenue model collapsed.

This isn’t about politics.

This is about math.

This is about incentives.

This is about what happens when you assume your golden geese will stay in the coupe forever, even while you keep raising the cost of feed.

I’m going to walk you through exactly how this happened, the timeline, the decisions that led here, the staggering numbers involved, and who’s going to pay the price for the biggest fiscal miscalculation in California’s modern history.

Let’s go back to where this really begins.

What for years, California enjoyed a revenue boom.

Tech companies exploded.

Stock markets soared.

Capital gains flooded into Sacramento.

By 2021, the state was sitting on a record surplus, more than 90 billion dollars in excess revenue.

Gavin Newsome didn’t save it.

He didn’t build a rainy day fund large enough to weather what was coming.

Instead, he expanded the budget.

He launched new programs.

He increased spending commitments that would require permanent sustained revenue to maintain.

The assumption was simple.

The money would keep flowing.

The tech sector would keep printing profits.

The wealthy would keep paying California’s sky-high tax rates because where else would they go? Then the warning signs started appearing.

In late 2022, major corporations, began announcing headquarters relocations.

Oracle moved to Texas.

Huelet Packard Enterprise went to Texas.

Tesla, one of California’s most iconic success stories, relocated its headquarters to Texas.

Elon Musk himself moved.

But these weren’t just symbolic departures.

These were billiondoll revenue sources walking out the door.

Each one of those companies represented not just corporate taxes, but income taxes from thousands of high-paid employees, property taxes from owned real estate, sales taxes from local spending.

When a Fortune 500 company leaves, it doesn’t just take one revenue stream.

It takes an entire ecosystem of taxable economic activity.

By early 2023, the data started rolling in and it was ugly.

California’s franchise tax board reported that net out migration had accelerated.

But here’s what made it catastrophic.

It wasn’t just anyone leaving.

It was the top earners.

California’s tax structure is extremely progressive, which sounds fair until you realize what it actually means in practice.

The top 1% of earners in California pay nearly 50% of the state’s income tax revenue.

Let that sink in.

50%.

So when high earners leave, they don’t just take their own taxes.

They take half the state’s funding model with them.

In plain language, California built a mansion on a foundation supported by a handful of pillars.

And those pillars started cracking all at once.

Then came the fiscal year 2023 budget projections.

In January 2023, Newsome’s Department of Finance released revised forecasts.

They acknowledged a deficit, not a collapse, not a crisis, just a $22 billion shortfall.

They called it manageable.

They said it was due to stock market volatility and a temporary dip in capital gains.

The message was clear.

This is a blip, not a trend.

We’ll smooth it out.

But behind closed doors, the numbers were far worse.

The Legislative Analysts Office, California’s nonpartisan fiscal watchdog, started sounding alarms.

They pointed out that the revenue decline wasn’t just about market performance.

It was about structural loss.

Businesses and taxpayers were gone.

They weren’t coming back when the market rebounded.

By April 2023, the real picture emerged.

Corporate tax receipts were down 32% year-over-year.

Uh personal income tax collections, which make up more than half of California’s general fund, were down 18%.

And this wasn’t a national trend.

Other states were seeing revenue stability or even growth.

Texas, Florida, Tennessee, states with no income tax were reporting surpluses.

They were gaining the exact businesses and residents that California was losing.

Translation, this wasn’t an economic cycle.

This was a competitive failure.

6 days later, Newsome held a press conference.

He didn’t call it a crisis.

He called it a revenue adjustment.

He proposed cuts to certain programs, delays in planned spending increases, and tapping into reserves.

But here’s the problem.

California’s so-called rainy day fund, the one that was supposed to protect against exactly this kind of shock, wasn’t nearly large enough.

After accounting for constitutional requirements and restricted funds, the state had less than $ 24 billion in accessible reserves.

That sounds like a lot until you realize California’s general fund budget is over $200 billion.

The reserve covered barely two months of operations and the deficit was growing.

Within weeks, the dominoes started falling.

First domino, small businesses.

California has the highest state income tax in the nation, topping out at 13.

3%.

It has some of the highest commercial property taxes, the highest gas taxes, the highest regulatory compliance costs.

For small businesses operating on thin margins, the departure of big corporations meant fewer customers, fewer contracts, and less economic activity.

Retail stores in Silicon Valley started closing.

Restaurants that relied on tech workers cut hours.

Service providers lost clients.

These weren’t massive taxpayers individually, but collectively they represented billions in sales tax, payroll tax, and local revenue.

When they started failing, cities lost funding.

Second domino, public sector unions.

California’s government is heavily unionized.

Pension obligations alone consume a staggering portion of the state budget.

CalPERS, the state’s public pension system, has more than $400 billion in liabilities.

When revenue drops, the pressure to cut pensions or benefits becomes unbearable.

But public unions are politically powerful.

They fund campaigns.

They mobilize voters.

Newsome couldn’t afford to alienate them.

So instead of cutting pension costs, he tried to protect them, which meant the cuts had to come from somewhere else.

Third domino, social services.

California has the largest homeless population in the country.

It has the highest cost of living.

It has massive Medicaid obligations.

When the budget craters, these are the programs that suffer first.

Newsome proposed cutting billions from homelessness initiatives, delaying health care expansions, and reducing environmental spending.

But here’s the irony.

These were the programs he’d championed.

These were the policies he’d used to build his progressive brand.

Now he was gutting them to cover a revenue collapse caused in part by the very tax and regulatory policies that drove businesses away in the first place.

Think about that for a moment.

The same government that promised comprehensive services and ambitious social programs is now slashing those programs because it can’t keep the taxpayers who fund them.

By June 2023, the California state legislature was in crisis mode.

Republicans who hold a minority in both chambers started demanding accountability.

They pointed out that they’d warned about this exact scenario.

They’d argued for tax reform, for spending restraint, for policies that would keep businesses competitive.

They were ignored.

Now, with the budget in freef fall, Democrats were scrambling to find revenue anywhere they could.

Some proposed new taxes on the wealthy who remained.

Others suggested closing corporate tax loopholes.

But both strategies faced the same problem.

You can’t tax people who’ve already left.

Here’s where the legal and regulatory machinery made everything worse.

California has some of the most aggressive tax enforcement in the country.

The Franchise Tax Board actively pursues former residents who move to other states, auditing them to prove they’re still California residents for tax purposes.

The rules are insanely complex.

If you own property in California, if you have business interests, if you spend more than a certain number of days in the state, California claims you still owe taxes.

This creates a chilling effect.

People who might have kept a foothold in California cut all ties completely to avoid audits.

businesses that might have maintained satellite offices closed them entirely.

The aggressive enforcement designed to protect revenue actually accelerates the exodus.

Then in August 2023, a bombshell report dropped.

An independent fiscal analysis revealed that California had lost more than $340 billion in adjusted gross income from outmigration over the previous 5 years.

340 billion.

That’s not revenue.

That’s taxable income.

To put that in perspective, at California’s top tax rate, that represents more than $40 billion in potential state tax revenue gone.

And it was accelerating.

The report showed that the wealthiest counties, San Francisco, San Mateo, Santa Clara, the heart of Silicon Valley, were bleeding high earners faster than anywhere else in the state.

Translation: The economic engine that powered California’s budget is sputtering out.

Now, let’s talk about the human cost because this isn’t just a spreadsheet problem.

Meet Maria.

She’s a single mother working as an administrative assistant in San Jose.

Her company, a midsize tech contractor, just lost its three biggest clients.

All three relocated to Texas.

Her hours were cut from 40 to 25 per week.

Her health benefits are gone.

She’s trying to figure out how to pay rent in a city where the average one-bedroom apartment costs $2,800 a month.

She can’t afford to move because she doesn’t have savings.

She’s trapped in an economy that’s collapsing under her feet.

And the state government that promised to protect workers like her is cutting the very program she needs to survive.

Or consider James.

He owns a small manufacturing business in Orange County.

He employs 32 people.

He’s been paying California’s high taxes and navigating its regulatory maze for 15 years because he believed in the state.

But his largest competitor just moved to Nevada.

No corporate income tax, no inventory tax, lower workers comp costs.

His competitor can now undercut his prices by 15%.

James is facing a choice.

Move the business and lay off his California workers or stay and watch the company slowly die.

He’s losing sleep.

His employees, people he’s known for years, have no idea what’s coming.

These are real people, real families, real consequences.

This isn’t abstract fiscal policy.

This is the cost of a tax and spend model that assumed the golden age would last forever.

By September 2023, Newsome’s administration released another revised budget forecast.

The deficit had grown to $31 billion, not 22, 31.

In six months, the hole had deepened by $9 billion.

The governor’s office tried to spin it as conservative forecasting, accounting for uncertainty.

But the truth was obvious.

They had no idea how bad it was going to get because they had no idea how many more businesses and taxpayers were planning to leave.

Let’s talk about the specific tax mechanisms that are failing.

California relies on capital gains taxes for a huge portion of its revenue.

When stock markets boom and tech companies go public, Sacramento gets a windfall.

But capital gains are volatile.

When markets dip, revenue collapses.

Worse, California taxes capital gains as ordinary income.

So, if you’re a tech founder and your company goes public, you could be facing a 13.

3% state tax on top of federal taxes.

The combined rate can exceed 50%.

Founders started planning exits before their companies even went public.

They established residency in zero tax states like Wyoming or Florida, then sold their shares.

California got nothing.

The state also relies heavily on corporate taxes.

But here’s the trick.

Corporations are mobile.

California’s corporate tax rate is 8.

84%.

Texas is zero.

Florida is zero.

Tennessee is zero.

Uh if you’re a CFO looking at a multi-million dollar tax bill, moving the headquarters is an easy call.

And it’s not just about the rate, it’s about the complexity.

California’s tax code is a nightmare.

Compliance costs are enormous.

Audits are aggressive.

Legal fees add up.

Companies are leaving not just because taxes are high, but because the entire system is hostile.

By October 2023, bond rating agencies started paying attention.

Moody’s issued a warning about California’s fiscal trajectory.

They didn’t downgrade the state’s credit rating, but they put it on watch.

That’s a big deal.

If California’s credit rating drops, borrowing costs go up.

The state has hundreds of billions in outstanding debt.

every fraction of a percentage point increase in interest costs taxpayers millions.

And here’s the kicker.

Investors are nervous because they see the same thing we’re seeing.

The revenue model is broken.

The spending commitments are locked in.

The political will to make hard choices doesn’t exist.

Think about the irony.

California, the fifth largest economy in the world, is facing a fiscal crisis, not because it’s poor, but because it drove away the wealth that made it rich.

In November 2023, Newsome proposed a new tax, not on corporations, not on the ultra-wealthy who’d already left, on the middle class.

He called it a temporary revenue measure to stabilize the budget.

It was a sales tax increase.

Sales taxes are regressive.

They hit lower income families hardest.

The same governor who campaigned on equity and fairness was now proposing a tax that would hurt the people he claimed to protect.

The backlash was immediate.

Progressive Democrats revolted.

Moderate Democrats panicked.

The proposal died in committee within 3 weeks.

So what’s the alternative? Cuts.

Deep, painful cuts.

By December 2023, the administration began floating trial balloons, cutting state employee salaries, furls, delaying infrastructure projects, reducing university funding, slashing environmental programs.

Every single one faced massive political opposition.

Public unions threatened strikes.

Environmental groups threatened lawsuits.

University leaders warned of brain drain.

Nuome was trapped.

He couldn’t raise taxes because the voters wouldn’t accept it and the wealthy had already left.

He couldn’t cut spending because every dollar in the budget was protected by a powerful interest group.

Here’s the fundamental problem.

California’s government is structurally designed to grow.

Ballot initiatives passed over decades have mandated spending on schools, health care, pensions, infrastructure.

These aren’t discretionary.

They’re locked in.

So when revenue collapses, there’s almost nothing left to cut.

The governor can’t touch schools because Proposition 98 guarantees a minimum funding level.

He can’t touch pensions because they’re constitutionally protected.

He can’t touch health care because federal Medicaid matching funds are tied to state spending levels.

The only things left to cut are the programs that don’t have legal or constitutional protections.

And those are usually the newest initiatives, the very programs Newsome championed.

Translation: He’s forced to dismantle his own legacy to cover a crisis he helped create.

Let’s zoom out and look at the competitive landscape.

Texas gained more than $40 billion in adjusted gross income from migration.

In the same period, California lost 340 billion.

Florida gained 37 billion.

Tennessee gained 11 billion.

These aren’t accidents.

These states made deliberate policy choices, no income tax, businessfriendly regulations, lower cost of living.

They rolled out the red carpet for California refugees.

And those refugees brought their businesses, their income, and their tax payments.

And here’s the thing, it’s not just about taxes.

It’s about quality of life.

California has the highest homelessness rate in the nation.

It has rolling blackouts.

It has water shortages.

It has some of the worst traffic in the world.

It has a cost of living so high that six figure salaries feel like poverty.

Uh people are leaving not just because taxes are high, but because they’re high and they’re not getting value.

If you’re paying top dollar taxes, you expect top tier services.

Instead, Californians are getting crumbling infrastructure, failing schools in many districts, and a homelessness crisis that grows every year despite billions in spending.

So why would anyone stay? By early 2024, the situation reached a breaking point.

The state controllers’s office released a mid-year fiscal report.

Revenue was down 41 billion dollars from projections, 41 billion.

The deficit had nearly doubled in less than a year.

Newsome held an emergency budget session with legislative leaders.

They had three options: massive tax increases, massive spending cuts, or massive borrowing.

Tax increases were political suicide.

Spending cuts would trigger revolts from every constituency.

borrowing was expensive and only delayed the problem.

They chose a combination of all three, but the cuts were shallow, the taxes were minimal, and the borrowing was enormous.

California issued $15 billion in new bonds.

That debt will cost taxpayers billions in interest over the next 30 years.

And for what? To cover a budget shortfall caused by policy failures.

Future generations of Californians will be paying for programs they never benefited from.

to cover a fiscal crisis they didn’t cause.

Here’s the accountability question that no one in Sacramento wants to answer.

Who made the decision to build a government so dependent on a tiny sliver of taxpayers that their departure would cause systemic collapse? The answer is everyone.

Decades of governors, legislators, and voters who approved ballot measures without understanding the long-term consequences.

But Gavin Newsome is the one holding the bag right now.

He’s the one who expanded spending when revenue was booming.

He’s the one who ignored warnings about out migration.

He’s the one who championed policies that made California less competitive.

And now he’s the one scrambling to explain why the state is broke.

Let’s go back to the human impact because the people paying the price aren’t the politicians.

Um, meet David.

He’s a firefighter in the Central Valley.

He’s worked for CalFire for 19 years.

He was three years away from full retirement.

Now the state is talking about pension reforms, benefit cuts, changes to retirement age.

His plan was simple.

Work until 60, retire with a decent pension, spend time with his grandkids.

Now he’s looking at working until 65, maybe longer, with a reduced pension that won’t cover his cost of living.

He did everything right.

He served his community.

He paid into the system.

And now the system is failing him because the state couldn’t manage its budget.

Or consider Linda.

She runs a nonprofit in Los Angeles that provides housing assistance to low-income families.

Her organization relies on state grants.

Those grants have been cut by 40%.

She’s had to lay off half her staff.

Families who were on waiting lists for housing assistance are being turned away.

The homelessness crisis is getting worse and the very programs designed to address it are being gutted.

The irony is suffocating.

By mid 2024, national media started paying attention.

California’s fiscal crisis became a case study in what happens when progressive taxation and expansive government meet economic reality.

Conservatives pointed to it as proof that high taxes drive away growth.

Progressives argued that the real problem was wealth inequality and corporate greed.

But both sides missed the point.

This isn’t about ideology.

This is about incentives and consequences.

California created a system where the most productive, most mobile taxpayers had every incentive to leave and no reason to stay.

Ideology didn’t cause the collapse.

Math did.

Let’s talk about what happens next because this isn’t over.

California has three possible paths forward.

Path one, reform, cut spending, simplify the tax code, reduce regulations, make the state competitive again.

This would work, but it requires political courage that doesn’t exist.

Every reform threatens a powerful interest group.

Cutting pensions threatens unions.

Cutting environmental regulations threatens activists.

Cutting social programs threatens voters.

No politician wants to be the one who dismantled California’s progressive legacy, even if that legacy is bankrupting the state.

Path two, muddle through.

Keep borrowing, keep raising small taxes, keep making shallow cuts, and hope that economic growth bails them out.

This is the most likely path because it’s the easiest politically, but it doesn’t solve the problem.

It just delays the reckoning.

Every year of muddling through adds more debt, more deferred maintenance, more structural problems.

Eventually, the bill comes due and it will be far more painful than if they dealt with it now.

Path three, collapse.

This is the doomsday scenario.

Revenue continues to fall.

Borrowing becomes too expensive.

Credit rating drops.

The state can’t meet its obligations.

Pensions get cut.

Schools close.

Infrastructure crumbles.

It sounds extreme, but it’s happened before in other places.

Detroit, Puerto Rico, Greece.

When governments promise more than they can deliver and refuse to change course, collapse becomes inevitable.

Which path will California take? Right now, they’re on path two, muddling through.

But the trend lines are pointing toward path three.

Here’s what nobody is talking about.

The exodus is accelerating.

Every time California raises taxes or passes a new regulation to cover its budget hole, it gives more people a reason to leave.

It’s a vicious cycle.

Lose taxpayers, cut services or raise taxes, lose more taxpayers, repeat.

And the people who can afford to leave are the ones the state needs most.

The ones who can’t afford to leave, the working class, the poor, they’re stuck in a system that’s collapsing around them.

So, let’s recap the logic.

Uh, California built an enormous government funded primarily by a small number of high-income earners and profitable corporations.

It assumed those taxpayers would stay forever.

It ignored warning signs of out migration.

It expanded spending during boom times instead of saving for downturns.

When businesses and wealthy individuals started leaving for lower tax states, revenue collapsed.

The state’s tax structure, designed to be progressive, became its fatal weakness.

The budget deficit exploded.

Politicians couldn’t agree on solutions because every option threatened powerful interests.

So, they borrowed money, made shallow cuts, and hoped for a miracle.

Meanwhile, real people, workers, small business owners, families are paying the price for decades of fiscal mismanagement.

This is the story of what happens when a government forgets that taxpayers have choices.

Here’s my warning.

California’s crisis is coming to other states.

Illinois has similar problems.

New York is watching wealthy residents leave.

New Jersey is facing budget shortfalls.

The same dynamics are at play.

High taxes, high costs, aggressive enforcement, mobile taxpayers.

If California can’t fix this, no state is safe.

And if states start collapsing, where does the burden shift to the federal government? Which means to all of us, so here’s my accountability question for you, and I want you to answer this in the comments.

At what point do taxpayers have a moral obligation to leave a system that’s financially unsustainable? And at what point does a government have a moral obligation to stop promising things it can’t afford? That’s the real question California is forcing us to confront.

And the answer matters because this isn’t just about one state.

This is about the future of how we fund government in America.

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Drop your thoughts in the comments.

Tell me if you think California can recover or if this is the beginning of the end.

This story is still being written and every day that passes without real reform brings California closer to a point of no return.

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