At least seven blue states are poised to introduce new wealth tax bills this week to make the uber-rich pay more, The Washington Post reported yesterday.
The push is a coordinated effort by the states to boost their revenues through wealth taxes in a way that Congress has failed to do, Greg Valliere, chief U.S. policy analyst at AGF Investments, said in a note to investors this morning.
In addition to higher taxes on income and capital gains, state lawmakers “are determined to enact a ‘wealth’ tax that would force rich taxpayers to pay taxes annually on assets that they own, rather than just their income that year. This idea, pushed by Sen. Elizabeth Warren (D-Mass.), has gone nowhere in Congress,” Valliere said.
Valliere called legislation in California, Connecticut, Hawaii, Illinois, Maryland, New York and Washington, which collectively house 60% of the nation’s wealth, “a new tax plan to soak the rich.”
The Washington, D.C. analyst said that “progressive activists know there’s absolutely no chance that Congress could pass a ‘wealth’ tax, so they are moving to Plan B — a coordinated effort to introduce legislation later this week in seven wealthy states to impose higher taxes on the rich.”
Congress is highly unlikely to raise taxes in the next two years, Valliere predicted. “Simply continuing the Trump tax cuts that expire in two years will be tough enough, but if the states, now flush with money, begin to falter in a recession, tax hikes might be on the table.”
The bill expected to be introduced in New York today would also levy an extra 7.5% tax on capital gains for married couples with income above $550,000, and 15% for couples with income above $1.1 million, Valliere said.
The New York proposal would also impose a nearly 30% tax on wealthy New York City residents’ capital gains income, twice as high as the 20% federal tax on long-term capital gains, Jared Walczak, vice president of state projects at the Tax Foundation said in analysis yesterday.
State lawmakers, however, remain resolute that the push to tax the wealthy is important. “The point here is to make sure we do at the state level what is not being done at the federal level,” Gustavo Rivera (D), a New York state senator, told the Washington Post.
Rivera and other state legislators said that state taxes are a trial balloon for future federal tax hikes and noted that acting collectively should minimize the threat of people moving to surrounding states with lower taxes.
But Valliere doesn’t think the seven states will stop the already-pronounced tax flight from higher-tax states to lower-tax locales like those in Florida and Texas. “One can only imagine the reaction from people in New York City who would be classified as ‘rich’ with annual income of $550,000, over half of which is gobbled up by taxes already,” he said.
The nonpartisan Empire Center for Public Policy reported in December that New York lost 180,341 people during the 12 months ending July 1, 2022 and experienced a total population decline of 524,079 since the decennial census count of April 1, 2020, including the loss of 2,000 millionaires, according to the latest Internal Revenue Service data.
The exodus could continue in California, where lawmakers seek to impose a 1.5% annual tax on assets of $1 billion or more, Valliere added.
Florida once had an "intangibles" tax that included investments but that was repealed in 2007.
The fact that wealth taxes “are imposed regardless of whether there is any income at all, and regardless of whether net worth is increasing or decreasing,” is likely to further fuel increasing tax flight, said Walczak.
The economic consequences from both migration and lower economic activity are “so significant that even at the national level, most countries have abandoned any wealth taxes they once had,” he said. “Some 13 OECD countries have imposed wealth taxes since 1965, but that number dwindled to just three—Norway, Spain, and Switzerland—by 2022, with governments increasingly acknowledging the economic harms intrinsic to such taxes.
“However, Colombia’s new left-wing government reinstituted a wealth tax for the start of the current calendar year. That is the only recent example for states to follow, amid a general trend of repudiation and repeal. France has a tax on high-end real property, but no longer on other sources of wealth,” Walczak added.