OK, now can we stop paying federal taxes?
Why should Californians pay in to a system that is providing fewer benefits each day?
UPDATE: June 30, 2025
The Senate is voting on the reconciliation bill today. Follow along on CNN and NPR.
I spoke with Jeff Le, managing partner of 100 Mile Strategies, earlier in the year to ask him why California and other donor states—that is, states that contribute more money to the federal government than take—can’t withhold payments now that all our services and grants are being cut. It seemed unlikely at the time and Jeff’s take was that we wouldn’t be giving as much anyway because we have so many financial hits coming to our state from the roller-coaster economy, tariffs and the firing of federal workers.
But I reached out again when Gov. Gavin Newsom floated the idea himself in a public-facing tiff with the White House occupant. How about now? Has anything has transpired since that could make this possible? Le provided the answers in an email.
Vanessa McGrady: Since we last spoke in March, things seem to have gotten more intense regarding the federal budget. Do you think that, if passed by the Senate, the so-called One Big Beautiful Bill will have a better, worse, or unknown effect on states and the money that trickles down to working people? Who wins, who loses?
Jeff Le: Time certainly flies in politics and government. The President has put tremendous pressure on the Senate to pass the Big Beautiful Bill by July 4. It’s very unlikely that the Senate will make that deadline given the fractious challenges facing the body.
The short answer is that it’s still unclear who will win and lose, but it’s likely that larger corporations and the top 1% of the wealthy will benefit. The working families’ access to food nutrition and healthcare are significant risks.
Of note, the potential cuts at Medicaid have represented a significant flashpoint and has created fissures among the Republican members. Conservative Senator Josh Hawley (R-MO) has argued that cutting funds to rural hospitals and communities would be the party walking away from its key constituencies. Over 4.2 million people could become uninsured with proposed changes. Senators Rand Paul (R-KY) and Ron Johnson (R-WI) have pushed for deeper cuts across the board to pay for the permanent tax cuts because the bill is projected to add an additional $2.8 trillion of deficit over 10 years.
Also because of parliamentary rules that must be met to allow only a simple majority vote in the Senate instead of 60, some proposals may be ruled as ineligible that adds further uncertainty on where spending cuts can be made or savings found. Republicans will have to come together to find creative ways to pay for the tax cuts.
It is likely that states will see reductions in federal funds. An example is with the District of Columbia, which is slated to lose $1 billion that would come from education and healthcare. States are now unlikely to receive grants for cybersecurity and other homeland security programs.
One exception is with expanded SALT deductions [what taxpayers can write off] in blue states, such as New York, New Jersey and California. This has been a priority for blue state House Republicans hoping to include a $40,000 limit.
Even if the Senate can pass the bill, the legislation still needs to go to conference to reconcile the differences between the House and Senate. Politically, significant Medicaid cuts may sink House Republican support. Given the narrow majority in the House, there is room for potential concern for the Caucus. My prediction: Republican members will eventually cave to give the President his legislative win.
VMc: Let’s talk about the showdown between Gov. Gavin Newsom and Trump. Could Newsom actually withhold money due to the federal government? If so, how would that work and what would happen to those funds? If the states are no longer funneling money to support Medicare, USAID, research, education, and all the other things that were once the responsibility of the federal government, would that money then go to billionaires in the form of tax cuts, the DOJ to fund lawsuits, and ICE to deport people—all of which are wildly unpopular?
JL: States are required to pay their share to the federal government. Since California is largely a personal income tax state for revenue, the clearest way that funds could be withheld would be if individual Californians elected not to pay their federal taxes. The Governor has made it clear that he would advocate for that position.
Sales tax would go straight to the locals and federal taxes are also collected at airports, ports, and transportation. Companies and corporations are also required to pay their federal obligations.
The best way for the state to push for funds to go away from less politically popular policy initiatives would be to work with its Congressional delegation as Congress controls the purse, but this delegation is unlikely to challenge the President.
VMc: Wouldn’t the cuts made to the budget actually COST more money for the American people? It’s easier and less expensive to prevent sickness than to treat it, for example. Also, say an institute is on year four of five of a $5 million research project that gets canceled a year before the work is complete to save the remaining $1 million. Wouldn’t that mean the previous $4 million had been wasted?
JL: Yes – cancellation of leases and contracts from the DOGE process and proposed cuts to federal research would mean that funds would not actually lead to longer term benefits. That is the argument that California is making on proposed cancelation of grants and federal research funds, but based on what the administration has done to target higher education, NIH, the National Science Foundation and other science organizations, it may fall to deaf ears.
VMc: I understand that if the IRS collected all the unpaid taxes, that would amount to nearly $700 billion each year. That seems like a pretty good place to start balancing the budget without having to fire anyone. I think I know the answer to this, but what’s your take on why this is a nonexistent priority?
JL: It has been a priority to Democrats to increase the number of IRS employees to conduct audits and enforcement for tax evaders who tend to have higher incomes. The IRS was slated to receive an increase of $60 billion over ten years under President Biden’s Inflation Reduction Act to bring in more revenue. Tax loopholes still represent ways for evasion but a bolstered IRS was an important priority.
President Trump proposed a $2.5 billion cut to the IRS and shrunk the workforce by almost over 14%. The administration also ended its free filing service and stopped various IT project investments for an agency woefully behind in technology.
Republicans have advocated for decimating the IRS, even calls for abolishing the organization because of claims that middle class families are hounded by IRS overzealous agents and overreach.
VMc: Anything else people should know? Can you please explain to me like I’m a kindergartener why every single thing that the administration does makes zero sense fiscally?
JL: The administration is focused on what its base wants: which is seismic change to what they have seen as malaise. Watch for the battle between deficit hawks and the loyalists. Watch for how business lobbying, particularly with agriculture and the hospitality industry, impact how ICE raids are conducted.
My thought after Jeff’s last answer there: It’s truly shocking and telling that ICE raids could be mitigated by this administration only if there’s significant short-term financial benefit (and we know that it has been devastating), and not because we are talking about human beings with lives and families. Human beings.