Proponents of California’s proposed Billionaire Tax Act have a story to tell: President Donald Trump and the Washington Republicans cut health care, and so the “billionaire tax” is the necessary response.

Then there’s the reality, which we describe in a new paper from the Hoover Institution.

Our analysis looks at what Trump’s “One Big, Beautiful Bill” actually does to Medi-Cal, and whether the proposed first-in-the-nation wealth tax would address it.

Spoiler alert: The answer to the second question is no, and the reasons start with Sacramento, not Washington.

Start with the fact that the state of California does not have a revenue problem; it has a spending problem.

State tax revenue is up 55 percent since 2019, but spending is up more — 68 percent over that same period.

Newsom’s own January 2026 budget forecast projected a $93 billion shortfall over the next four years. This is a hole that was dug entirely by Sacramento Democrats, not Washington Republicans. 

The driver of this crisis is Medi-Cal, California’s Medicaid program.

Since 2011, total program expenditures have nearly tripled, to about $185 billion a year, and Medi-Cal’s claim on the general fund has grown from 14 to 20 percent.

Have Medi-Cal services or quality increased nearly threefold since 2011? They have not. By virtually every measurement, Medi-Cal’s quality rating remains below the national median for both adults and children.

This is not a program in need of a bailout. It’s one that needs systemic reform. 

Yes, the funding reductions in the One Big Beautiful Bill will reduce federal Medi-Cal spending by $156 billion over 10 years.

But more than half of that — $89 billion — comes from work (or volunteer) requirements for able-bodied adults who don’t qualify for the law’s broad exemptions. 

Paying the bills for able-bodied adults who choose not to work, train, or volunteer 80 hours per month is a policy choice that Sacramento can make.

But voters should understand it for what it is: an optional state spending expansion, not a hole created by Washington.

What about the wealth tax? It fails on its own terms. 

We project “one-time” revenue — scare quotes very much intended — of $40 billion. Using Sacramento-style math, that $40 billion is supposed to cover a $156 billion, 10-year federal reduction.

Put another way: The “one-time” billionaire tax is aimed at making sure work requirements for Medi-Cal never apply in California. That’s pretty much it.

Meanwhile, as billionaires leave, the state’s income tax base will erode by roughly $2.9 billion per year.

When those recurring losses are combined with the federal reductions, the $40 billion will be exhausted by 2029.

At that point, every fiscal incentive points toward extending the tax or passing a new one.

Suddenly, that “one-time” levy will look very much like a foot in the door to permanent wealth taxation.

There is an alternative to all of this: Simply accepting the One Big Beautiful Bill’s work requirements. That would actually save the state approximately $15 billion over 10 years.

From there, the actual math isn’t complicated.

Ending “free” Medi-Cal for illegal immigrants would save $4.1 billion annually.

Returning Medi-Cal’s share of the General Fund to its pre-COVID average of 15.7 percent would save $9.8 billion per year.

Together, that would generate over $125 billion in savings, nearly double the remaining $67 billion California has to cover after work requirements are included.

The Billionaire Tax Act is not a solution. It’s a deflection. The state has all the fiscal tools it needs to solve its budget problem. What it lacks is political will to use them.

Joshua Rauh is the George P. Shultz Senior Fellow in Economics at the Hoover Institution, Benjamin Jaros is a research fellow and John Doran is a research associate at Stanford University’s Hoover Institution.