Gov. Gavin Newsom used a San Francisco stage last week to call the federal "Trump Accounts" one of the president's best ideas and urge families to sign up. Five months earlier, California's own Franchise Tax Board had quietly decided to tax those same accounts every year — a stance conservatives branded the "toddler tax" — before Newsom signed it away in July.

The national coverage out of the Aug. 21 event was the odd-couple optics: a governor who fights the White House daily praising a program named for Donald Trump. What that framing skipped is that Newsom is standing on both sides of this account. His administration let a state tax on the accounts sit for months, drawing sustained attacks, then reversed it with a mid-July law change — so by the time he was onstage cheering the accounts, the very problem his own tax agency created had just been erased.

At the San Francisco press conference, held to mark one million California families claiming the state's own CalKIDS "baby bond" accounts, Newsom went out of his way to boost the federal alternative. He urged Californians to open a Trump Account — the child investment account created in the 2025 tax-and-spending law and seeded with a one-time $1,000 federal deposit for babies born 2025 through 2028 — and, as reported by The Hill (external source, opens in a new tab), called it "one of the best things" Trump has done. San Francisco Treasurer José Cisneros stood with him.

That enthusiasm is newer than it looks. Back in the spring, the California Franchise Tax Board had taken the opposite posture. Because state law conforms to the federal tax code only as it read on Jan. 1, 2025 — before the accounts existed in statute — the FTB determined it would not treat Trump Accounts as the tax-deferred vehicles they are federally. The practical result, flagged by California tax specialists at the time, was that account earnings would be taxed by the state every year, employer contributions would count as taxable income to the worker, and families would have to keep a second set of California-only tax records for each child.

Conservative groups pounced. Americans for Tax Reform ran the label that stuck, calling it Gavin Newsom's "toddler tax" (external source, opens in a new tab) and noting the awkward timing: San Francisco companies, foundations and an anonymous city donor were lining up to pour money into the accounts even as the state prepared to tax the growth. The group also reported that Newsom's office, asked whether he would support overriding the tax board, declined to answer.

Then the politics turned. In mid-July, California updated its tax law to conform to the federal treatment, and the annual state tax evaporated. As Berkeleyside reported in a piece republished from EdSource (external source, opens in a new tab), "a law change means California families won't owe taxes on money in Trump Accounts." Cassandra DiBenedetto, who directs the board that runs California's tax-advantaged college savings program, framed the reversal as pure upside for families, saying the state didn't want children to miss out on the benefit "regardless of anything around it."

By the time Newsom reached the SF podium, in other words, the trap his administration built had already been dismantled — and he was free to celebrate the accounts without the asterisk. The stakes are concrete and local: state officials estimate more than 350,000 of the roughly 400,000 babies born in California each year will qualify for the federal $1,000. In San Francisco, an anonymous donor's $3.5 million gift will add $500 to an account for each child born in the city this year, and chipmaker Micron is funding $250 for children in Sacramento and Santa Clara counties.

None of that made the national write-ups, which stopped at the man-bites-dog headline of Newsom praising Trump. The fuller story is a governor who let his tax board turn a children's savings program into a compliance headache, absorbed months of "toddler tax" hits, quietly fixed it, and then took the stage to claim the win.