Tax the rich? Liberals renew push for state wealth taxes

ap photo A homeless man pushes a shopping cart full of his belongings across an intersection in the Skid Row area of Los Angeles in 2013. Supporters of taxes on the very rich contend that people are emerging from the COVID-19 pandemic with a bigger appetite for what they’re calling “tax justice.”

Supporters of taxes on the very rich contend that people are emerging from the COVID-19 pandemic with a bigger appetite for what they’re calling “tax justice.”

Bills announced Thursday in California, New York, Illinois, Hawaii, Maryland, Minnesota, Washington and Connecticut vary in their approaches to hiking taxes, but all revolve around the idea that the richest Americans need to pay more.

All of the proposals face questionable prospects. Similar legislation has died in state legislatures and Congress. But the new push shows that the political left isn’t ready to give up on the populist argument that government can and should be used as a tool for redistributing wealth.

“Under the pandemic, while people struggled to put food on the table, we saw billionaires double their wealth,” said California Assembly Member Alex Lee, a Democrat.

The Tax Foundation, a conservative-leaning policy organization, called wealth taxes — which levy taxes not just on new income, but on a person’s total assets — “economically destructive.”

It also said in a statement that such taxes create “perverse incentives” for the rich to avoid taxes, including simply moving to states with a lower tax burden.

“Very few taxpayers would remit wealth taxes — but many more would pay the price,” the group said in a statement. Progressive Democrats, however, argue they are not seeing wealthy taxpayers leaving their states due to higher taxes.

California already taxes the wealthy more than most states. The top 1% of earners account for about half of the state’s income tax collections. But this week, Lee proposed a “wealth tax,” similar to one promoted for years by U.S. Sen. Elizabeth Warren, a Massachusetts Democrat.

It would impose an annual tax of 1.5% on assets of more than $1 billion and 1% on assets of $50 million or more. The new tax on wealth, not annual income, would affect an estimated 23,000 “ultra-millionaire” and 160 billionaire households, or the top 0.1% of California households, Lee said.

In Connecticut, progressive lawmakers are proposing more traditional hikes: a higher tax rate on capital gains earnings for wealthy taxpayers and higher personal income tax rates for millionaires,

“We need to ensure that the wealthiest in our state truly pay what they owe and not expect working families across our state to continue to subsidize their share,” said state Rep. Kate Farrar, a deputy majority leader in the Democrat-controlled House of Representatives.

One obstacle to such proposals is that some states where the idea might be popular are currently running budget surpluses, meaning there is little pressure to raise revenue.

Connecticut is expected to end its fiscal year with a $3 billion surplus. Hawaii is projecting a budget surplus of $1.9 billion going into the new legislative session.

But Hawaii state Rep. Jeanne Kapela, a Democrat, said a proposal there to increase the state’s capital gains tax is more about economic equity than raising money.

“If you look at our tax code now, it’s really the definition of economic inequality,” Kapela said.

The lowest-paid workers in many states often see a far bigger percentage of their income go to pay taxes every year than the very rich, particularly in states that don’t have a graduated income tax.

Voters in Massachusetts, which had a flat income tax, approved an amendment to the state constitution in November that sets a higher rate for those earning more than $1 million a year.

Despite optimism expressed by liberal lawmakers that 2023 could be the year, many of these proposals face an uphill battle, even in blue states with Democratic governors.


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