The fight over how to pay for Medi-Cal puts pressure on Newsom to raise taxes

The dilemma over how to respond to billions of dollars in cuts to social services — particularly to the budget for Medi-Cal, the state’s nearly $200 billion Medicaid program — foreshadows a showdown that will dominate both the 2026 legislative session and the midterm elections.

As one union pursues a controversial wealth tax ballot measure to offset the cuts, progressive Democrats in the Legislature are floating a separate corporate tax, though details remain scant. If that materializes into a bill, it’s also likely to divide the party, which is sensitive to accusations that Californians are over-taxed and has recently declared its leaders will focus on lowering costs for state residents.

In his final year as governor, Newsom faces a tug-of-war between two politically radioactive options: increasing taxes, or letting benefits lapse for millions of low-income and disabled Californians. Though his administration has sought only to blame Trump for the federal cuts, health care advocates made it clear they will push Newsom to help prevent steep coverage losses.

“I want to take a moment to address the governor and the state Legislature,” said Judy Mark, president of Disability Voices United, from the Capitol steps. “We know that you are not responsible for these awful cuts, but now the responsibility does lie in your hands. You have the power to protect us.”

The governor angered health advocates when he didn’t include money to backfill coverage when he released his state budget proposal, which acknowledges that tens of thousands will lose coverage and counts fewer services among projected revenue savings. This year, the state began freezing new Medi-Cal enrollment for undocumented immigrant adults over rising costs in the program, over the objections of progressives and health advocates.

Newsom’s analysts expect about 522,000 Californians to lose Medi-Cal coverage in the 2026-2027 fiscal year, rising in the future to 1.8 million. His administration has said the state simply doesn’t have the money to pay for coverage for people who are booted off the program due to new federal laws.

One union, the Service Employees International Union–United Healthcare Workers West, has proposed a ballot initiative that would impose a wealth tax on California billionaires to help cover the roughly $30 billion the state would lose annually from Trump’s tax-and-spending law. Proponents say the one-time 5% levy would generate about $100 billion for the state’s health care system. About 10% of the money raised would be reserved for public schools.

But Newsom is fighting the measure, which has yet to qualify for the ballot but has still sent Sacramento and Silicon Valley into a tizzy.

Billionaires critical to state budget

The proposal has set off a flurry of opposition. Google founders Larry Page and Sergey Brin have reportedly moved to shift some business entities out of California while others are threatening to leave. Democratic strategists close to Newsom are running a campaign committee to defeat the measure as the union collects the nearly 900,000 signatures needed to qualify it for the November ballot.

Newsom, who has repeatedly opposed state wealth tax proposals, this week told Politico he’s been personally pushing the measure’s proponents to drop it over concerns it could drive the targeted demographic — and their incomes — out of California. He also has longstanding personal ties to many of the tech titans who would likely be subject to a proposed wealth tax, and has reason to keep them close: they are potential donors should he make an expected presidential run after finishing up his term as governor this year.

Even as progressives push Newsom to raise revenue to bolster Medi-Cal, few of them have actually embraced the wealth tax proposal, with most of them taking a wait-and-see stance. They also won’t criticize Newsom’s opposition, a potential sign that liberal lawmakers are hoping he’ll be willing to pursue other funding for health care.

Newsom’s spokesperson, Izzy Gardon, declined to comment whether he would consider alternative tax proposals.

The health advocates said they would make replacing federal funding a key priority this legislative session. Progressive lawmakers, who led the charge against Newsom’s proposal to cut costs by freezing Medi-Cal for undocumented immigrants, have signaled they’ll take up the fight as well.

Assembly Health Chair Mia Bonta, an Oakland Democrat, suggested the state look at imposing new taxes on corporations that employ workers who are paid so little they qualify for public health care assistance.

“We cannot let these corporations keep getting a free ride,” she said. “California has a responsibility to act decisively, and we will.”

But she has not introduced a bill, and health care advocates said they’re still just hoping to have more options on the table.

___ This story was originally published by CalMatters and distributed through a partnership with The Associated Press.