Staff Reports
California lawmakers quietly signed a budget package that does what Sacramento does best: find new ways to take more money from families and businesses. The 2026 budget and its trailer bills tucked in three major tax changes — a routine gas tax bump, a new sales tax on digital software and a redesigned managed‑care organization (MCO) tax — that together are set to pull in billions more from Californians.
New taxes in the budget: what passed
The gas tax rise already hit drivers this year when the motor‑vehicle excise tax went up under its automatic adjustment. That added a few cents per gallon, which is projected to bring in a few hundred million dollars. The budget also expands the state sales‑and‑use tax to cover digital prewritten software and some SaaS transactions starting January 1, 2027, a move estimated to raise about $450 million in the first partial year and roughly $900 million a year after that. Finally, the Legislature rewrote the managed‑care organization tax into a flat $8.85 per enrollee per month charge aimed at shoring up Medi‑Cal funding and generating roughly $575 million in 2026‑27 and about $2 billion or more annually once fully in effect.
Who pays — and when the pain arrives
Drivers already feel the gas tax increase at the pump. Businesses that buy digital software or subscribe to SaaS will start seeing sales tax added to invoices next year, and that especially hits small businesses with tight margins. Insurers and health plans face the MCO per‑enrollee tax and warn they may pass at least some costs to employers and consumers through higher premiums. The Legislative Analyst’s Office notes that federal approvals and implementation details will shape how much of the tab falls on private coverage versus public coffers — meaning Californians could pay more twice, through taxes and through premium hikes.
Why they say it was needed — and why that’s not an excuse
Officials argue the changes were necessary: federal Medicaid rule shifts forced a redesign of provider‑type taxes so the state could keep federal matching dollars for Medi‑Cal, and the software tax updates the sales‑tax base for modern digital goods while funding education and health priorities. That sounds reasonable until you remember Sacramento controls spending. Instead of trimming waste and reforming how the state spends its money, lawmakers chose to expand the tax base and invent a new steady charge on health coverage. If leaders really cared about affordability, they’d lock the spending and force departments to do more with less — not add new fees and call it fiscal responsibility.
Who pushed this through
The budget and trailer bills were advanced and signed with Democratic leaders in charge: Governor Gavin Newsom worked the package through, with Assembly Speaker Robert Rivas and Senate President pro Tempore Monique Limón steering votes in the Capitol. With a supermajority in Sacramento, there was little to stop this suite of taxes from becoming law, and the predictable result is more revenue and more excuses for higher future spending.
Bottom line: more taxes, more risk, less accountability
California’s tax burden just got heavier in ways that will ripple across households and businesses. Watch for higher software costs in procurement, for employers adjusting health benefits, and for insurers warning of premium pass‑throughs. Lawmakers who promise brighter budgets while adding new taxes should answer one simple question: where will they cut? Until Sacramento starts trimming spending — not shoppers, drivers and patients — Californians will keep paying the bill for a state that enjoys taxing more than it does restraining itself.
