California Proposes “Impact Tax” on Big Tech to Address $12 Billion Budget Shortfall

As California faces a projected $12 billion state budget deficit, two former state senators have proposed a bold and controversial solution: a new “impact tax” targeting big tech companies that profit from Californians’ data.

Introduced by former State Senators Connie Leyva and Steven Glazer, the proposal argues that tech giants like Meta, Google, and others have contributed significantly to two major crises in the state — the decline of youth mental health and the collapse of local journalism — without paying their fair share toward the social costs.

What Is the “Impact Tax”?

The proposed legislation would place a revenue-based tax on tech companies, specifically calculated from the income they derive from using, monetizing, or selling data generated by California residents.

Key Features:

• Estimated to raise $1 billion annually

• Funds would be earmarked to:

  • Expand school-based mental health services

  • Rebuild independent local journalism across California

• Modeled after impact mitigation fees seen in other industries (e.g., environmental and energy sectors)

  
  

Why This Tax Is Being Proposed

1. Youth Mental Health Crisis

• Lawmakers and public health experts link rising mental health issues among teens to excessive social media use, algorithm-driven content, and data harvesting practices by social platforms.

• Schools and public agencies are bearing the burden of mental health care, with no direct financial support from the platforms driving demand for services.

2. Collapse of Local News

• Local newspapers and radio stations have suffered as tech companies redirected advertising dollars away from community journalism and into centralized platforms.

• The proposal aims to restore independent reporting, which has been shown to reduce local corruption and improve civic engagement.

  
  

Support and Opposition

Supporters Argue:

• The tax would hold tech companies accountable for the social externalities they’ve helped create.

• Revenue would be targeted to urgent, measurable needs: student mental health and public information access.

• It would not fall on everyday consumers, avoiding regressive impacts.

  
  

Potential Opposition:

• Tech industry advocates are expected to push back, warning it could:

  • Hinder innovation

  • Raise compliance costs

  • Spark retaliatory legal action over data jurisdiction

• Questions remain on how “data-derived revenue” will be measured, and how companies might pass along costs or adjust their services

  
  

Fiscal Context: California’s Budget Strain

Governor Gavin Newsom recently announced the $12 billion deficit, citing:

• Reduced capital gains tax receipts

• Declining personal and corporate income taxes

• Ongoing healthcare and infrastructure spending pressures

Lawmakers are now weighing a mix of revenue-generating ideas and cost-saving reforms. The “impact tax” joins a growing list of targeted revenue options under discussion.

Final Takeaway

As states confront massive budget gaps, California’s proposal reflects a broader trend: taxing digital activity and platform profits to fund essential public services. For tax professionals and policy advisors, this signals a possible shift toward sector-specific tax regimes and more aggressive state-level tech regulation.

At Bizora AI, we’ll continue to track state tax innovation and help firms stay ahead of new compliance and planning requirements.