Liberals press again for higher state taxes on billionaires and ultra-millionaires to ‘pay what they owe’

Bills announced Thursday in California, New York, Illinois, Hawaii, Maryland, Minnesota, Washington and Connecticut differ in their approaches to raising taxes, but all revolve around the idea that America’s wealthiest will have to pay more.

All proposals are faced with questionable prospects. Similar laws have died in the state legislatures and in Congress. But the new push shows that the political left is unwilling to give up the populist argument that government can and should be used as a tool for redistributing wealth.

“As people struggled to put food on the table during the pandemic, we saw billionaires double their fortunes,” said Democrat Alex Lee, a member of the California Assembly.

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

A statement also said such taxes create “perverse incentives” for the wealthy to avoid taxes, including simply relocating to states with lower tax burdens.

“Very few taxpayers would pay wealth taxes – but many more would pay the price,” the group said in a statement. But progressive Democrats argue they don’t see wealthy taxpayers leaving their states for higher taxes.

California already taxes the rich more than most states. The top 1% of income taxes account for about half of state income tax revenues. But this week Lee proposed a “wealth tax,” similar to one that has been promoted for years by US Senator 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 wealth tax, not annual income, would affect an estimated 23,000 “ultramillionaire” and 160 billionaire households, or the top 0.1% of California households, Lee said.

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

“We need to make sure that the wealthiest in our state really pay what they owe and not expect working families in our state to continue subsidizing their share,” said 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 currently have budget surpluses, meaning there is little pressure to increase revenues.

Connecticut is expected to end its fiscal year in surplus of $3 billion. Hawaii forecasts a budget surplus of US$1.9 billion for the new legislature.

But Hawaii State Rep. Jeanne Kapela, a Democrat, said a local capital gains tax increase proposal was more about economic justice than money-raising.

“Now if you look at our tax code, it really is the definition of economic inequality,” Kapela said.

The lowest-paid workers in many states often have a much larger percentage of their income to pay taxes than the very wealthy, especially in states that don’t have phased income taxes.

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

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

“This ‘tax on the rich’ existed before and it’s back. And frankly, it’s never caught on before, and I seriously doubt there’s an appetite for it now,” said Gary Rose, professor of political science at Sacred Heart University in Fairfield, Connecticut.

Many people, he said, don’t hate the rich as much as they do some progressive Democrats.

“I think if you’ve surveyed the American public, a lot of people want to get rich themselves, and it’s part of the American dream, if you will,” Rose said. “We’ve never really had a tremendous appetite in this country for taxing the rich, because getting rich … really is a part of who we are and what makes this country different from a lot of democratic socialist countries.”

A wealth tax law in California didn’t even get a public hearing last year. Governor Gavin Newsom, a Democrat just elected to a second term in a landslide, has actively opposed efforts to raise taxes on the wealthy.

His opposition helped topple a 2022 ballot initiative that would tax the wealthy to pay for electric vehicle charging stations and wildfire prevention.

In Connecticut, Democratic Gov. Ned Lamont, a multimillionaire, says he wants to focus on cutting taxes rather than raising them in his second term.

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