Could California really withhold tax money from the US if Trump cuts federal funds?

Gov. Gavin Newsom suggested last week that California may withhold taxes it pays to the United States if President Donald Trump slashes federal funding to the state.

It could be another front in the escalating battle between the Trump administration and the Golden State, which are at the moment wrestling over the president summoning the military to handle protests against immigration raids in Los Angeles. But how it would all work — on both sides — is anyone’s guess.

CalMatters asked several tax experts to weigh in on how the state could withhold money from the federal government. Most would not comment about what they called a “vague” threat by state officials. But they pointed out that residents and businesses pay state and federal governments directly when they file their income taxes — making it unclear what tax money California could withhold.

Newsom is not suggesting people stop paying their taxes, said Tara Gallegos, a spokesperson for the governor. But she said the state is considering “whether there are potential options that would allow it to retain some of the funding it typically sends the federal government.”

She would not provide further details and did not answer CalMatters’ question about which of his staff the governor has directed to explore those options.

California’s biggest sources of revenue are personal income tax, corporation tax and sales tax, the last of which goes to local and state governments. The state does not handle other excise taxes, such as those from airports, transportation and more, that the federal government receives, according to the Finance Department.

Newsom on Friday also floated on social media the idea that California is a “donor” state and contributes tens of billions of dollars more a year to the U.S. than it gets back, something Gallegos reiterated to CalMatters.

A study by the Rockefeller Institute of Government found that in fiscal year 2021-22, California provided about $83 billion more to the federal government than it received, nearly three times as much as the next state, New Jersey, which provided about $29 billion more than it received from the U.S.

In addition, California taxpayers contribute the most of any state to total federal taxes, according to IRS data the state’s Finance Department cited. In fiscal year 2023-24, California’s total federal taxes were $806 billion — nearly twice as much as Texas, which contributed $417 billion, and more than twice the $384 billion New York contributed.

State Assembly Speaker Robert Rivas also posted on social media last week that California must look at “every option” including withholding tax dollars, saying that “we're the nation's economic engine and the largest donor state, and deserve our fair share.” Rivas, a Salinas Democrat, was not available to answer questions, his staff said.

Some people dispute the notion of donor states.

“The governor’s long-standing complaint that California is a donor state rings hollow,” said Jared Walczak, vice president of state projects for the Tax Foundation, a Washington, D.C.-based right-leaning think tank. “Unless California politicians are questioning the legitimacy of Medicare, Medicaid, and Social Security, the complaint that California residents pay more in federal taxes than they get back is disingenuous.”

“Courts have made it abundantly clear that you can't be a conscientious objector to paying taxes,” Walczak said.

Courts have also made it tough for the White House to cancel funding.

White House spokesperson Harrison Fields confirmed in an email to CalMatters this week that the Trump administration is reviewing possible wide-ranging funding cuts to California, as reported last week by different media outlets such as CNN and the Washington Post. But Fields said no decision has been made, and would not specify which programs are being considered for defunding. In the same email, Fields said the answers were on background or off the record, which he and CalMatters did not agree to beforehand.

H.D. Palmer, spokesperson for California’s Finance Department, pointed to the Trump administration’s attempt to freeze hundreds of billions of dollars in federal grants and loans, through an Office of Management and Budget memo, which it then rescinded in late January after public outcry and court orders.

“One salient point from our high school civics lessons: The power of the purse doesn’t lie with the (presidential) administration,” Palmer said.

Palmer provided a list of state programs that receive the most federal funding, which the state is counting on in its current budget. The list includes money for health, education, highway planning and construction, disaster recovery, grants for the Supplemental Nutrition Assistance Program and more. The biggest is $100.9 billion for medical assistance programs.

He said the White House has yet to provide specifics or answer the following question: “What public policy benefit are you seeking by withholding these federal dollars from California?”

This article was originally published on CalMatters and was republished under the Creative Commons Attribution-NonCommercial-NoDerivatives license.