Trump’s tariffs are expected to cut California’s tax revenue by $16 Billion

Governor Gavin Newsom’s finance team warned in a memo released on Tuesday that California expects to lose $16 billion in tax money next year because of President Donald Trump’s tariff plan.

The memo says revenue in the fiscal year that starts in July will fall 4% from the state’s earlier forecast. Staff members link the slide to a stock sell‑off that hit Wall Street after Trump set out a wide tariff push on April 2.

The officials broke down the projected loss this way: about $10 billion less from capital‑gains taxes, $2.5 billion less from corporate taxes, and roughly $3.5 billion less from personal‑income taxes tied to wages and business profits.

“Trump’s tariff policies weakened the national and state outlook and caused equity losses,” the memo says. Officials add that these factors began to drag on California receipts in 2025 and erased the strong cash flow the state had seen earlier in the year.

Even so, revenue for the fiscal year that ends in June still stands $6.8 billion above Newsom’s last estimate. On the same day the memo came out, a rally led by technology firms pushed U.S. stocks into positive territory for the year.

Washington and Beijing said on Monday they will temporarily lower duties on each other’s goods, another sign that could boost investor mood.

Newsom calls the gap “Trump Slump”

Politico first reported on the memo, which lands one day before the governor is due to unveil his new budget proposal for the coming fiscal year. 

California’s budget is dependent on the richest households. The top 1% of earners pay nearly half of all personal‑income tax, and much of that money hinges on capital‑gains income that follows the stock market.

The new hit to the treasury comes on top of $27.3 billion in financial remedies. It includes $16.1 billion in cuts and a $7.1 billion removal from the state’s rainy‑day fund. California’s constitution requires a balanced budget each year, which means that any shortfall must be closed. Hence, this will be the third year in a row that Newsom and lawmakers trim spending after earlier budgets allocated more money than the state can spend on various programs.

Trump’s April tariff order placed duties on all imported goods, raised taxes on items from Mexico, Canada and China, and set extra levies on products such as cars and aluminum. While the president has since eased some of those tariffs, Newsom argues that the policy and the uncertainty around it will raise unemployment and inflation, lower gross domestic product and shrink capital‑gains revenue for California.

Last month California sued Trump, saying that he lacks the authority to impose tariffs all on his own.  On Tuesday, state attorneys said they will ask a federal judge for a preliminary injunction that would freeze the tariffs while the case moves forward.