In what some observers and the media are calling a “coordinated effort,” lawmakers in seven different states that collectively represent about 60% of the nation’s wealth have introduced so-called “wealth taxes” in their state legislatures.
Legislators in Democrat-controlled California, Connecticut, Hawaii, Illinois, Maryland, New York, and Washington are spearheading the effort.
These new tax proposals range from large hikes on investment income and death taxes to more radical proposals that would upend the traditional tax-collecting structure in the United States.
For instance, in some of these states, novel forms of taxation have been introduced that would require so-called “wealthy” individuals to pay taxes on their owned assets rather than their income.
“The point here is to make sure we do at the state level what is not being done at the federal level,” said State Sen. Gustavo Rivera (D-NY).
State Sen. Noel Frame (D-WA) argued to the Washington Post that “states are the labs of innovation, but taxes are different.”
“This is why we are all here together,” she continued. Her hope is that states will no longer “get pitted against each other.”
Proponents of these new wealth taxes are attempting to address the issue of “outmigration,” or people moving, by passing similar legislative packages.
Further, some of the proposals even include “exit taxes,” which are designed to tax individuals even after they have moved out of the state.
An exit tax proposal in California would subject an individual who moves out of the state to wealth taxes for several years.
The Tax Foundation, a non-profit organization focused on tax policy research, asserts that exit taxes are extremely likely to run afoul of the Commerce Clause of the U.S. Constitution and various clauses of state constitutions, but notes “not that constitutions will always stand in the way” of these lawmakers’ ambitions.
According to the Tax Foundation, in 2021, Americans overwhelmingly chose to move from so-called “high-tax” states to “low-tax” states.
The Tax Foundation studied commercial data from U-Haul and United Van Lines, the nation’s top two moving and relocation companies, and found that people, and their wealth, flowed from high-tax states like California, New York, and New Jersey to low-tax states like Florida and Texas.
Calling these proposals “economically destructive,” the Tax Foundation predicts severe consequences if enacted, despite provisions such as exit taxes.
“In fact, the economic consequences — both from outmigration and lower economic activity — are so significant that even at the national level, most countries have abandoned any wealth taxes they once had,” the Tax Foundation claimed.
But these lawmakers are undeterred. State Delegate Jheanelle K. Wilkins (D-MD) said she hopes that the effects of the pandemic will help these ideas gain momentum.
“That’s quite a bit of funds that we’re leaving on the table,” she remarked.
