Within weeks, every Californian with private health insurance will pay roughly $100 more per year thanks to a new health plan tax. At the same time, the state is slapping a 7.25% tax on digital software-as-a-service products — the tools millions of businesses use daily to actually function.
The state expects this to raise about $1 billion annually. The people who study taxes for a living think the real cost will be much, much higher.
David Kline, Vice President of Research and Communication for Cal Tax, laid out the problem in terms even Sacramento should understand. "The tax, layering or pyramid, depending on how you want to describe it, that's the biggest problem," Kline told RedState contributor Ward Clark. The software tax doesn't just hit you once. It cascades through every layer of a business that uses digital tools — which in 2026 is every business.
The products getting taxed aren't luxuries. Microsoft Office. QuickBooks. Workday. Slack. These are the basic infrastructure of modern work. A small business owner in Fresno using QuickBooks to do payroll and Slack to talk to her three employees just got a 7.25% surcharge on the privilege of operating in California.
Kline estimated the actual cost could be five to six times what the state projects, because the tax pyramids — it gets applied at each transaction layer, compounding as it moves through the supply chain. A billion dollars in projected revenue means five to six billion dollars in actual economic cost absorbed by businesses and consumers. "California has an affordability crisis," Kline said. "And this tax is going to just add a tax extra cost."
That's the understatement of the decade from a man who's professionally required to be measured.
Governor Gavin Newsom's California has perfected a specific governing philosophy: make it more expensive to live and work in the state, then act baffled when productive people and companies relocate to Texas, Florida, Tennessee, or anywhere that doesn't treat economic activity like a punishable offense. The health plan tax hits individuals. The SaaS tax hits businesses. Together, they form a pincer movement against anyone still stubborn enough to stay.
Kline noted that "there is some time left in the legislative session for things to be changed," which is the polite version of saying these taxes aren't law yet and could theoretically be stopped. But this is California. The state where the legislature's answer to every budget shortfall is another tax, and the answer to the resulting exodus is another study on why people are leaving.
The math is straightforward. You can't simultaneously be the most expensive state in the country and the most hostile to the people generating the revenue. You can't tax software tools at 7.25%, add $100 per person to health insurance, watch the real economic hit balloon to five or six times your projections, and then wonder why your tax base keeps shrinking.
Ronald Reagan once joked that government's view of the economy could be summed up in a few short phrases: if it moves, tax it; if it keeps moving, regulate it; if it stops moving, subsidize it.
California's on step two. Step three is going to be expensive — for the rest of us.
