Affordability is a hot topic throughout the country, especially in California, where the cost of living is extraordinarily high – so much so that gubernatorial candidates and legislators have centered their messaging to voters around affordability.
At the same time, however, state lawmakers proposed more than $16 billion in tax and fee increases during the first year of the 2025-26 session.
In the Assembly, 12 lawmakers voted for at least $10 billion in tax and fee increases. In the Senate, eight lawmakers reached the $10 billion mark.
As much as lawmakers may express concern about their constituents’ ability to afford staying in California, the actions they take in the Capitol speak louder than words.
The California Tax Foundation’s Tax and Fee Report describes all of the tax and fee increases considered this year, along with a summary of how each lawmaker voted.
The Legislature is scheduled to reconvene January 5, and many of this year’s tax and fee hikes are still on the table – along with new measures that will be introduced as part of the traditional rush of legislation at the beginning of the year.
These proposals are being watched closely by taxpayers, including employers who give strong consideration to the tax burden when deciding where to invest, hire, and expand.
A study by the Washington, D.C.-based Tax Foundation ranked California 48th out of the 50 states for its tax climate – only New Jersey and New York have worse tax climates. California ranked in the bottom 10 because of its “complex, nonneutral taxes with comparatively high rates,” the report said.
Some of the highest-ranked states – including New Hampshire (third) and Texas (seventh) – don’t have either a corporate income tax, individual income tax, or a statewide sales tax.
The $16 billion in taxes and fees introduced in California would hit businesses hard. Three bills, making up $15 billion of the total, are targeted directly at businesses (relating to a retroactive emissions liability on targeted businesses, a corporate tax increase tied to employee compensation, and a tax on digital advertising). Of course, these taxes would be passed along to consumers in the form of higher prices for goods and services.
For individuals living in the San Luis Obispo, Monterey, or San Francisco areas, purchases also could get more expensive as a result of the Legislature’s approval of measures authorizing higher sales tax rates in these counties. Come November 2026, voters in these counties will decide whether to approve these tax increases.
Concurrently, the Howard Jarvis Taxpayers Association is collecting signatures to qualify an initiative that will plug a loophole created by the courts and restore the California Constitution’s two-thirds vote requirement for special taxes. If the signature-gathering effort is successful, voters will have an opportunity in November 2026 to reestablish this guardrail against over-taxation.
Rather than deepening California’s affordability crisis and pricing more people and businesses out of the state by increasing taxes and fees, legislators should focus on fostering economic expansion. The state has approved legislation in recent years to assist employers in some specific industries, but a more broad-based approach to improving the business climate would have a greater impact.
Working with businesses, rather than targeting them, would be a win-win. Californians would enjoy more job opportunities and growth in their retirement accounts and other investments, and history indicates that the government would experience a windfall of tax revenue without increasing existing rates.
Lawmakers can make 2026 a groundbreaking year by adopting this approach to affordability.
Jeissy Lee is a policy analyst at the California Taxpayers Association.
