California collected nearly $297 billion in state tax revenue this year. That's not a typo.

To put that in perspective: if you stacked $297 billion in $100 bills, the pile would be taller than Mount Everest. Twice.

So where did it go?

The Big Three

Almost 73% of California's revenue — roughly $216 billion — comes from three taxes: personal income tax, sales tax, and corporate tax. If you have a job in California, you're contributing to all three every time you get paid or buy something.

Where it gets spent

The total 2025-26 state budget is $495.6 billion when you include federal funds. About 81% flows directly to local programs — K-12 schools, community colleges, health services, and welfare programs. Another 18% goes to state operations like universities, prisons, and government agencies.

The single biggest chunk goes to education. The Proposition 98 minimum guarantee sits at approximately $118 billion this year — roughly 40 cents of every General Fund dollar going to TK-12 schools and community colleges.

Second biggest is healthcare. Medi-Cal alone costs $196.7 billion this year, with $46.4 billion coming from the state General Fund. The rest comes from the federal government. Over one-third of all Californians are enrolled.

The part nobody talks about

In 2022, California had a nearly $100 billion surplus. Two years later, it faced a projected $56 billion deficit. This year, the deficit is projected to reach nearly $18 billion — despite strong tax revenues driven by the AI boom.

How does that happen? California depends heavily on taxing the income and capital gains of high earners, whose fortunes are tied to the stock market. When the market swings, so does the state budget. The state essentially bets its finances on how well Silicon Valley is doing in any given year.

That's not a sustainable way to run a $495 billion operation.

What this means for you

Your taxes are mostly going to things most people agree on — schools, healthcare, roads. The problem isn't where the money goes. It's how the state manages the flow. When times are good, California spends like it'll last forever. When times get hard, the cuts hit the programs people actually depend on.

That's the pattern. And it's been repeating for decades.

Next week we're going deeper — looking at one specific area of the budget and asking the question nobody in Sacramento wants to answer: is this money actually working?

Stay subscribed.

— Prabhnoor

Sources