Reclaiming the California Dream from the Right and the Left
Reclaiming the California Dream from the Right and Left
California is the beating heart of the American economy—home to a $4 trillion GDP, a global epicenter of technology, innovation, and culture. But for many Californians, the promise of prosperity feels increasingly out of reach. Why? Because they are being squeezed from both sides: by a state tax system that is highly progressive but inefficient, and a federal tax system that has grown more regressive and punitive toward high-output states like California.
This double bind is not just unfair. It’s unsustainable.
The High-Cost, Low-Return Trap
At the state level, California boasts one of the most progressive tax codes in the country. The top 1% of earners contribute nearly half of all state income taxes. The top marginal rate stands at 13.3% (14.5% for wage income). And yet, the return on this investment often falls short. Public transportation remains patchy. Homelessness has surged despite billions in spending. Schools are under-resourced, housing is unaffordable, and key infrastructure lags behind.
Californians are not opposed to paying their share. But they want results. What they have now is a system that extracts more without delivering better. As Tom Peters noted in In Search of Excellence, “excellent organizations stay close to their customers.” Government should be no different. When citizens feel disconnected from the value of their contributions, legitimacy erodes.
A Regressive Federal Squeeze
While state taxes are high, the federal government has moved in the opposite direction—making its tax code less progressive and more politically skewed. The 2017 Tax Cuts and Jobs Act, with its cap on State and Local Tax (SALT) deductions at $10,000, forced Californians to pay an additional $11.2 billion in federal taxes annually. These funds are often redistributed to lower-cost states that contribute less yet receive more.
Recent proposals to raise the SALT cap to $30,000 provide modest relief but fall short of restoring fairness. Meanwhile, new federal tax proposals offer performative populism—tax breaks on used cars and overtime pay that do little to change economic fundamentals. According to the Penn Wharton Budget Model, many Americans making under $51,000 could actually see their after-tax income decline beginning in 2026 once spending cuts are factored in. For those earning less than $17,000, the losses could exceed $1,000.
In contrast, the top 0.1% of earners—those making over $4.3 million—stand to gain an average of $389,000 in after-tax income. These stark disparities undermine claims that the new tax plan is pro-worker and reveal a continued drift toward policies that reward wealth, not labor.
Progressive Intent, Regressive Outcome
California’s tax base is so concentrated that revenue rises and falls with the fortunes of a narrow elite. During booms, surpluses paper over structural dysfunction. During downturns, revenue collapses. This volatility undermines essential public services and forces the state to rely on budget gimmicks, borrowing, and one-time fixes.
Between January 2024 and January 2025, California lost jobs in nearly every sector except government, healthcare, and social assistance. That includes professional services (-56,800), manufacturing (-38,500), construction (-30,800), finance (-26,100), and information (-10,000). This is not a formula for sustainable growth. It reflects an economy increasingly reliant on redistribution rather than regeneration.
Even as California forecasts an 18% increase in tax revenue compared to two years ago, spending continues to outpace it. The expansion of Medicaid to undocumented immigrants, for example, will cost $2.7 billion more than anticipated. Governor Gavin Newsom has proposed limiting new enrollments and introducing monthly premiums—a tacit admission that the program has outgrown its political rationale.
Meanwhile, leadership continues to blame external forces. Newsom recently cited federal tariffs and market volatility as culprits for the state’s projected $12 billion shortfall. But tech stocks like Nvidia, Meta, and Apple are all up over the past year. The real issue lies closer to home: a tax system built on volatility, and spending commitments that lack sustainability.
An Economy That Doesn’t Work for Workers
This tax squeeze coincides with a long-term crisis in wages. Adjusted for inflation, many Californians today earn no more than their counterparts in the 1970s. Meanwhile, costs for healthcare, housing, education, and now electricity have exploded.
Dual-income households are the norm not because families want more—but because they have no choice. The rise of the gig economy and informal labor (affecting up to 17% of California’s workforce) means more people are working without benefits, job security, or a path to the middle class.
These workers are not outliers. They’re teachers, drivers, caregivers, and small business owners—the backbone of California’s economy. And they are tired of being asked to support a system that doesn’t support them in return.
Reform Over Rhetoric
Too often, political leaders offer gimmicks in place of solutions. On the right, economic populism takes the form of tax stunts and budget cuts that deepen long-term inequality. On the left, we get symbolic wealth taxes and ambitious welfare expansions unmoored from execution. Neither approach addresses the core problem: a dysfunctional system that fails to reward work, punishes success, and leaves too many behind.
Reclaiming the California Dream means rejecting ideological extremes. We must:
Reform the state tax system to deliver more efficient, transparent, and results-driven services.
Reassert progressivity at the federal level so productive states aren’t penalized for their success.
Crack down on labor misclassification and informal economies.
Reinvest in public goods—education, transit, healthcare—that offer real upward mobility.
Confront market distortions—from real estate speculation to monopolistic pricing—that inflate costs and widen inequality.
This isn’t just a California problem—it’s a national one. But California has always been a bellwether. If we can fix it here, we can lead the country back toward a fairer, more functional economy.
The dream isn’t dead. But it is being drained—by policies that serve political agendas instead of public needs. Californians deserve better. And if we’re serious about restoring opportunity, dignity, and mobility, we need structural reform—not symbolic gestures—from both Sacramento and Washington.