Inequality Is Already Extreme in California — Republican Cuts Could Worsen It

The gap between the rich and poor in California is vast, and the majority of Californians believe this is a problem that policymakers should address. However, Republican federal budget proposals would significantly widen inequities by taking health care, nutrition assistance, and other essentials away from millions of people to fund massive tax breaks for the wealthy. These proposals would also deepen racial and ethnic inequities, with cuts falling hardest on Californians of color and tax benefits predominantly enriching white Californians.

California’s leaders should do everything possible to combat inequality and protect their communities from these federal threats by first working to prevent or mitigate harmful cuts, while also developing strategies to protect their communities if those cuts are enacted. State policymakers can safeguard essential services if they equitably raise new state revenue by ending costly tax breaks that further enrich the wealthy and corporations who will be the primary beneficiaries of federal tax cuts.

California’s Stark Income Inequality

While millions of Californians struggle to afford food, housing, and other necessities as the state’s affordability crisis worsens, a tiny sliver of the population enjoys extreme income and wealth. The richest 0.1% of Californians had an average income of $12.9 million in 2022 (the most recent year for which data are available) — about 250 times the average income of middle-income Californians ($51,300). The top 0.1% earn in just over a day what the average middle-income Californian makes in an entire year. The richest 1% of Californians, with an average income of $2.6 million in 2022, can make in about one week what the average middle-income Californian earns in a year.

Collectively, the richest 0.1% of Californians — nearly 17,500 households — have more income than the roughly 3.5 million households in the middle fifth. In other words, a population roughly the size of the city of Los Angeles is out-earned by a group small enough to fit inside a sports arena. Specifically, the top 0.1% had 12% of all income reported for state tax purposes in 2022, while the middle fifth had 9% of all income. Altogether, the richest 0.1% of Californians reported about $226 billion in income for state tax purposes that year.

Corporate Profit Growth Far Outpaces Workers’ Wage Increases

Corporations have seen skyrocketing profits in recent years, but these gains have failed to trickle down to the workers who help make those profits possible. California corporate profits reached $365 billion in 2022, reflecting a 133% increase since 2002 in inflation-adjusted terms. In contrast, the typical Californian’s earnings have barely kept up with inflation. Median annual earnings for a full-time, year-round worker rose by just 8% during that period, after accounting for inflation. While data on California profits after 2022 is not yet available, corporate profits nationally have continued to rise.

Corporations with state profits of at least $10 million — which represent just around 0.5% of all profitable corporations in the state — saw their profits in California more than double from 2017 to 2022, soaring from $113 billion to $220 billion. In contrast, Californians’ purchasing power declined during this period due to high inflation, a phenomenon that some researchers suggest has been amplified by corporations keeping prices high even as their costs declined following pandemic-era cost spikes due to supply chain issues. Households with low incomes have been hit hardest by inflation because prices have risen more for necessities that make up a larger share of their spending.

Republican Federal Budget Proposals Would Worsen Income Inequality

Proposed federal budget and tax cuts would greatly exacerbate the already stark inequalities in the state by slashing assistance that helps millions of Californians meet their basic needs while extending and potentially expanding tax breaks that primarily benefit wealthy people and corporations.

While the details of these cuts have yet to be determined, the budget resolution passed by Congress in April instructs the House committee with jurisdiction over Medicaid (Medi-Cal in California) to make cuts on of at least $880 billion over ten years and instructs the committee with jurisdiction over the Supplemental Nutrition Assistance Program (SNAP, known as CalFresh in California) to make cuts of at least $230 billion. These cuts would be roughly equal to the share of the proposed tax cuts that would go to the richest 1% of Americans. Federal cuts could also target other programs that help people meet their basic needs, such as income support for families, older adults, and people with disabilities.

Families with low incomes would be worse off, while wealthy households would get a windfall if Congress makes the deep cuts to Medicaid and SNAP included in the budget resolution instructions for the House and extends provisions of the 2017 federal tax law. Specifically, the top 1% of Americans would gain $43,500 a year on average while the bottom fifth of Americans would lose $1,125 annually from the combined impact of the deep cuts to Medicaid and nutrition assistance and the extension of  the 2017 tax law that mainly benefits wealthy people and corporations. In California, the reduction in Medi-Cal benefits alone could be akin to losing $1,948 in income, or about 8.7% of the average income of the bottom fifth of households.

Republican Federal Budget Proposals Would Worsen Racial Inequality

Proposed cuts to Medicaid (Medi-Cal) and SNAP (CalFresh) paired with massive tax breaks for the wealthy would also widen already stark racial inequities both nationally and in California.  Cuts to health and food assistance would overwhelmingly harm Californians of color, who are more likely to benefit from these programs due to the long legacy of racist policies and practices that have excluded them from income and wealth-building opportunities. About 8 in 10 Californians who are enrolled in Medi-Cal are people of color, including 57% who are Latinx, 12% who are Asian, 7% who are Black.¹Center on Budget and Policy Priorities analysis of US Census Bureau, American Community Survey data 2022-23. Latinx includes all individuals who identify as Latinx, regardless of race. 20% of Medi-Cal enrollees are white (not Latinx), while another 5% are multiracial or identify with another race not elsewhere specified. More than 7 in 10 Californians who head households enrolled in CalFresh are people of color, including 43% who are Latinx, 13% who are Asian, and 11% who are Black.²Center on Budget and Policy Priorities analysis of US Census Bureau, American Community Survey data 2022-23. Latinx includes all individuals who identify as Latinx, regardless of race. 27% of CalFresh heads of household are white (not Latinx), while another 5% are multiracial or identify with another race not elsewhere specified. In contrast, because racial income and wealth gaps are already vast due to centuries of structural racism, any tax policy that redistributes benefits to people with high incomes or wealth will disproportionately benefit white people. Nationally, in 2018 white households received 80% of the benefits of federal tax cuts enacted during the first Trump Administration even though they comprised 67% of households. In addition, research finds that white households generally receive 88% of the benefits of any corporate tax break, while Black and Latinx households receive just 1%.³This excludes the share of benefits of corporate tax breaks that go to foreign investors.

Federal Republican Tax Proposals Would Provide a Massive Windfall for the Wealthy

The details on what tax cuts will ultimately be included in the federal budget package is still uncertain, but the centerpiece will be extending or making permanent all or most of the provisions of the 2017 tax law enacted in the first Trump administration that are set to expire at the the end of 2025. Republican leaders are also considering additional tax cuts on top of extending the expiring provisions.

Republican Federal Budget Proposals Would Widen Inequality in Every California Congressional District

Across California, the federal budget and tax cuts would represent a large upward redistribution of resources from families already struggling with the costs of living to the wealthy who barely notice when the cost of essentials increases. Millionaires, who stand to benefit most from the proposed tax cuts, represent just between 0.2% and 2.8% of residents in each of California’s Congressional Districts. In contrast, large shares of residents in these districts could be harmed by cuts to Medi-Cal or CalFresh. In the majority of California’s districts, at least one-third of residents receive critical health coverage through Medi-Cal. Half to two-thirds of residents in 10 districts rely on Medi-Cal for health care. Additionally, at least 10% of residents in most districts count on CalFresh to buy groceries, with at least 20% using CalFresh to feed their households in eight districts.

State Leaders Should Protect Californians From Increased Hardship and Inequality

Policymakers should invest in the well-being of everyday people, not just the wealthy. But federal Republicans are pushing forward with plans to slash health care and other vital services that millions of people count on every day — all to further enrich the top 1%. These proposals would widen the already extreme income inequality in California, deepening racial and ethnic inequities and making it even more difficult for all Californians to prosper. State leaders should do everything they can to protect their communities from these threats, including ending costly tax breaks that further enrich the wealthy and corporations who will reap the majority of the benefits of these federal proposals. This would allow California to equitably raise new state revenue to shield communities from federal threats this year and beyond and safeguard essential services that promote the health and economic well-being of all Californians.