Communities across California face many challenges during President Trump’s second administration, from deep federal budget cuts that threaten to undermine Californians’ health, economic security, and well-being, to mounting affordability pressures and persistent inflation that have exacerbated communities’ longstanding unmet need for more affordable housing, health care, and child care. People with low incomes, immigrants, communities of color, and other marginalized Californians are bearing the brunt of these challenges, as harmful and discriminatory federal policies compound existing inequities based on race and wealth.
State leaders have an opportunity to chart a different path for California, and they have both the responsibility and the ability to respond. This report shows that:
- Policymakers have the tools to better meet Californians’ needs and the evidence to prove it. Recent progress — from improvements in health coverage, to gains in affordable housing and declines in homelessness, to increased child care enrollment and lower child poverty — shows that when the state invests in people’s essential needs, quality of life improves.
- Progress is now under threat from federal cuts and policy rollbacks. Federal cuts are targeting the very programs that have improved Californians’ lives, hitting the most vulnerable communities hardest and widening existing inequities.
- Policymakers have the resources and revenue solutions to fight back. California has the fourth-largest economy in the world and is home to a large share of the nation’s wealthy as well as some of the largest, most profitable corporations, all of which benefit from the state’s public services and infrastructure. Yet California loses billions of dollars each year due to tax breaks and loopholes that benefit corporations and the wealthy — resources that could be better spent meeting the needs of California families.
Tax Revenue Funds the Public Investments That Improve Californians’ Lives
Every Californian deserves affordable housing, health care, and child care, well-paying jobs, and the resources to build a secure future — and public investment is how we get there. Recent experience shows that when policymakers invest in meeting people’s essential needs, Californians’ quality of life improves. IN recent years:
California’s uninsured rate fell to a historic low following investments to expand access to health coverage
In 2014, California fully implemented federal health care reform, which, along with more recent state initiatives to expand full-scope Medi-Cal to all income-eligible Californians regardless of immigration status, helped the state reach a historically low uninsured rate of 5.9% in 2024.
Expanding Medi-Cal to undocumented children led to significant improvements in their health
Undocumented children in California became eligible for full-scope Medi-Cal in 2016, and coverage was fully expanded to cover all income-eligible Californians in 2024. Research shows that after the expansion to undocumented children took effect, the percentage of non-citizen children who reported being in excellent health increased by 10 percentage points from 20% to 30%, suggesting that investing in health coverage for all contributed to significant improvements in people’s health.
More Californians are exiting homelessness — thanks to public investments
This is in large part due to significant state investments in the Homeless Housing, Assistance and Prevention (HHAP) program, which allows communities across California to fund solutions tailored to their local needs. In 2024 alone, homeless service providers assisted over 330,000 Californians experiencing homelessness. HHAP has helped drive a 24% decline in youth homelessness since 2019 and supported more than 90,000 Californians in moving into permanent housing since 2023. These and other state homelessness investments have led to a statewide 9% drop in unsheltered homelessness in 2025.
California has doubled the production of new affordable homes in recent years
According to the California Housing Partnership, California produced more than 17,900 units in 2024. This increase was largely driven by major state investments in various affordable housing programs between 2019 and 2023, which helped thousands of developments pencil out and open their doors. More homes are still needed — but the gains are spreading, with more counties becoming affordable for California households with middle and lower incomes.
Enrollment in publicly funded child care has steadily increased following the partial expansion of subsidized child care spaces
In 2021, the Newsom administration promised to expand affordable child care to more than 200,000 children. Around 60% of that promise has been fulfilled: the share of eligible children enrolled in publicly funded child care grew from 11% in 2022 to 16% in 2024. That means thousands more children are getting the care that supports their healthy development and thousands more families have the economic security to thrive.
California’s child poverty rate dropped by 40% in one year following the significant temporary expansion of the federal Child Tax Credit
In 2021, the federal Child Tax Credit was increased and made fully refundable, allowing millions of families with very low incomes to access the full credit for the first time. This expansion drove a 40% drop in California’s child poverty rate and was associated with reductions in food insecurity and racial income inequities. This demonstrates that poverty is a policy choice and that a significant expansion of California’s own tax credits could have a widespread impact for families and individuals experiencing poverty.
Critical Needs Remain For Californians
Despite recent progress, much more public investment is needed — even before accounting for the growing harm of federal funding cuts. For example:
- Significant racial disparities persist in access to health care, especially among American Indian and Alaska Natives.
- Recent gains for unhoused Californians are at risk without sustained investments.
- California is investing only 20% or less of what is needed each year to close its affordable housing shortfall.
- There are still 1.8 million children in California who are eligible for publicly funded child care but not enrolled, underscoring the state’s need to fulfill its promise or risk forcing tens of thousands of families to make the impossible decision between going to work or caring for their child.
- When COVID-era investments expired, the child poverty rate rapidly increased, and California continues to have the highest poverty rate of the 50 states, tied with Louisiana, pointing to the need for state leaders to do more to help Californians meet basic needs.
Yet recent and projected budget shortfalls make clear that California’s tax system isn’t generating enough resources even to maintain recent progress — let alone build on it. And now, deep federal funding cuts and other harmful actions are upending California’s progress toward a more equitable future.
H.R. 1 and the Federal Budget
H.R. 1, the harmful Republican mega bill passed in July 2025, will deeply harm Californians by cutting funding for essential programs like health care, food assistance, and education.
See how California leaders can respond and protect vital supports.
Federal Cuts Are Threatening California’s Hard-Won Progress
The progress California has made didn’t happen by accident — it took sustained public investment. Now federal cuts are targeting the very programs that made that progress possible, and the communities bearing the greatest burden are those that were already struggling most.
If state leaders fail to raise additional revenue and expand public investments, here’s what’s at risk for California families:
Up to 2 million Californians may lose their Medi-Cal coverage
Federal cuts to health care could cause up to 2 million Californians with low and modest incomes, who are disproportionately Latinx and other Californians of color, to lose their Medi-Cal coverage. While this will impact all Californians, immigrants’ access to care is specifically restricted, including the elimination of health insurance coverage for many immigrants, such as refugees, asylees, and trafficking survivors. This is estimated to leave 200,000 Californians without crucial health insurance they need to survive. Recent state action to restrict coverage for immigrants will add to the harm by reversing progress made towards providing health care for all.
As people lose health insurance, clinics and hospitals — especially in rural areas — will face additional financial strain, leading to overcrowded clinics, fewer options for care in local communities, and higher premiums, among other ripple effects that will impact the entire health care system. Proposed additional state cuts to health care access for immigrants would further exacerbate the harm by causing even more Californians to lose coverage.
Over 3 million California households are at risk of losing some of all food assistance
Federal cuts to food assistance could put more than 3 million households with very low incomes, disproportionately Black, Latinx, and other people of color, at risk of losing some or all assistance. The harshest cuts target some of the most marginalized state residents, including refugees, asylees, and other humanitarian immigrants, as well as former foster youth, veterans, and people experiencing homelessness. Without state action to offset the cuts, food insecurity and poverty will rise, and an entire ecosystem of jobs and businesses connected to the food economy will be damaged.
At least 75,000 Californians could fall into homelessness
Federal threats to housing and homelessness programs, combined with inadequate state support, could undermine California’s progress in reducing homelessness and supporting housing stability for Californians with the lowest incomes, a large share of whom are older adults and people with disabilities. Harmful changes to federal Continuum of Care funding are expected, and current federal appropriations still fall short of covering nearly 15,000 California families with an Emergency Housing Voucher — putting homelessness services and households who have already secured housing at risk of falling back into homelessness. At the same time, a proposed federal rule targeting mixed-status households could put roughly 7,190 California families at risk of losing HUD-assisted housing, most of which include children, and impose new red-tape on more than 820,000 U.S. citizens in California. Proposed cuts to HHAP and the failure to provide new General Fund investments in affordable housing add to these challenges.
State Leaders Have Common-Sense Options to Raise Revenues and Protect Californians From Federal Harm
The choices state leaders make will determine who bears the burden and who benefits from H.R. 1. Maintaining the status quo means choosing to protect tax breaks for corporations and the wealthy at the expense of everyone else. Without bold action, people with low incomes, immigrants, communities of color, and other marginalized Californians will be left to bear the full brunt of federal cuts. California has commonsense options to minimize the harm, including:
Closing the “water’s edge” loophole, the most costly state corporate tax break
The “water’s edge” loophole allows global corporations that shift US profits to tax havens to avoid $3 to $4 billion in state taxes each year, at the expense of everyday people. This tax break rewards large profitable corporations that engage in aggressive tax planning by making it appear they are less profitable in the US and in California than they actually are — something small domestic businesses and individuals working for a living cannot do.
Putting reasonable limits on corporate tax credits and deductions
Reasonable caps on corporate tax credits and deductions would ensure corporations cannot use them to reduce their tax bill to the mere state $800 minimum tax. Policymakers can continue the temporary limit on business tax credits put in place by the 2024-25 budget agreement — which capped the use of credits to $5 million per business each year from 2024 through 2026 — and reverse course on the provision allowing businesses to claim refunds for the credits that exceeded the cap after the temporary limit expires. These refunds are estimated to cost the state $6.8 billion across fiscal years 2026-27 and 2034-35, a time when millions of Californians will be dealing with the harms of the federal budget cuts and the state will be ill-positioned to protect Californians without substantially raising revenue.
Ensuring that wealthy individuals inheriting valuable assets don’t escape taxation
This can be done by eliminating the state’s “basis step-up” tax break so that people inheriting assets pay tax on the full increase in value of those assets when they sell them and reinstating an estate or inheritance tax on large estates or inheritances. Most California estates go untaxed due to California’s lack of a state-level estate or inheritance tax and the overly generous exemption from the federal estate tax, which allows wealthy families to pass up to $30 million to their heirs tax-free ($15 million per individual). The basis step-up tax break is estimated to cost the state around $5 billion each year — although revenue gains from repealing it would start small and accrue over time. The potential revenue from enacting an estate or inheritance tax — which would have to be approved by state voters — would depend on the design, but by one estimate could raise between about $900 million and $3.6 billion, depending on the size of estates that would be subject to the tax.
The Path Forward: Equitable Revenue, Public Investment, and a California Where Everyone Thrives
Strengthening California’s revenue base is long overdue — and now, as the federal government abandons its responsibility to support the health and well-being of all Americans, it is more urgent than ever. California can and must chart a different course. By ensuring the most profitable corporations and wealthiest Californians pay their fair share, state leaders can generate the resources needed to protect communities from federal harm, build on hard-won progress, and move toward a California where everyone can thrive.
