California Governor Gavin Newsom has been playing “David versus Goliath” with President Donald Trump, especially as Trump has ordered troops into Los Angeles to quell protests against his immigration raids. Now Newsom has floated a wild idea: what if California stopped sending money to the IRS?
Yes, you read that right. The head of the fifth-largest economy in the world — home of tech bros, movie stars, and $12 oat milk lattes — is making noises about withholding federal tax revenue. Why? Because he’s mad. Specifically, he’s mad at Trump for what he sees as unfair and unconstitutional assaults on his state’s rights. But before you start imagining Sacramento hiring a goon to block wire transfers to Washington, let’s talk about what this really means. Spoiler alert: not much.
Here’s the core issue. California is what tax nerds call a “donor state.” That means Californians pay more to the federal government than they get back in benefits. In 2022, the Golden State sent Uncle Sam about $472 billion in federal taxes and got only around $400 billion back in spending.
This isn’t new. Donor states have grumbled about this imbalance for decades. New Jersey and New York have hosted their own pity parties. But California is the one now threatening to pull the plug. But here’s the kicker: there’s no actual legal mechanism for California to withhold federal tax dollars. None. Zip. Nada.
Federal income tax is collected directly from individuals and businesses by the IRS. It’s not like Sacramento gets a big pile of checks every month, then decides whether to forward them along with a Post-it that says, “For roads and vibes.” The IRS has already set up direct deposits with your paycheck. The federal tap doesn’t go through state plumbing.
Even if California wanted to intercept federal tax payments, doing so would be about as successful as trying to skim quarters from a vending machine by shaking it. Fun to imagine. Totally illegal. Also guaranteed to make the vending machine cranky.
If California did try something bold, like refusing to cooperate with IRS enforcement or blocking bank transfers, it would surely trigger a swift federal response. Think lawsuits, withholding of federal funds, and an avalanche of paperwork that would make the DMV look like a day spa.
Now, from a planning standpoint, this moment is interesting because it reminds us just how complicated our tax system really is. We think of it as this big, monolithic machine. But it’s actually more like a “throuple” marriage between federal, state, and local governments. And like any messy relationship, there are power struggles, money fights, and the occasional dramatic outburst on social media.
It also shines a spotlight on an uncomfortable truth. Where you live really does affect what you pay and what you get. Californians pay high state taxes and send more to Washington than they get back. Meanwhile, residents of lower-income, often lower-tax states get more bang for their federal tax buck. Paying tax in California can feel like going out to dinner after your nephew’s graduation, ordering the Caesar salad, and winding up paying for your cousin’s lobster and cocktails.
So what’s the takeaway? Don’t count on your state to block your tax bill. If you live in California, your withholding still ships directly to Washington, with or without Newsom’s moral protest. If you’re feeling cranky about what you get in return, join the club. But don’t skip filing, unless you enjoy penalties, interest, and IRS nastygrams.
In the meantime, keep your eyes open to proactive planning. Because while California may not be able to stop the flow of money to D.C., we can help you stop overpaying your share of it!