After years of debate, discussion and indecision over income gaps, some states have proposed laws to tax the uber-rich even as President Biden calls for the same. Is America ready to cross this major threshold of taxation?

The U.S. may or may not eventually tax the wealthy – but some states aren’t waiting to see.

Wealth tax proposals have been put forward – with varying success, observers say – in California, Connecticut, Hawaii, Illinois, Maryland, New York and Washington. Other states may follow.

Legislation includes possible wealth taxes, stronger estate taxes and taxing income from realized and unrealized capital gains. Proposals run from a general tax on net assets of more than $1 billion USD to a capital gains surcharge and double-digit taxes on individuals with state taxable income exceeding $1 million. Lawmakers want to tax stocks, bonds and other assets that can appreciate in value yet currently do not trigger a tax payment until sold; New York’s proposal, for instance, could produce almost a 30% tax on the capital gain income of rich New York City residents.

In California, a state representative has claimed that a wealth tax would raise $22 billion in revenue. Washington state – home to dozens of billionaires such as Microsoft co-founder Bill Gates – could raise about $3 billion annually through a proposed 1% tax on financial assets (the first $250 million of assets would be exempt).

The Arguments

Nationally, 30% of wealth ($39 trillion in 2022) is held by the 0.25% of households with total wealth over $30 million and white, non-Hispanic families hold 86% of America’s wealth. The wealthiest 1% of Americans have seen their fortunes grow 19 times faster than the bottom half of the population during the last decade, according to anti-poverty and other groups, in part because the U.S. taxes capital gains more favorably than it does income. Proponents say that taxing wealth could fund social programs, combat inequality and advance racial justice.

President Biden supports a U.S. wealth tax, which we mentioned in his recent State of the Union address, urging passage of a minimum 20% tax on households with a net worth exceeding $100 million. “Reward work, not just wealth,” Biden said. His proposals face little chance to passing, as Republicans control the U.S. House of Representatives.

Opponents say the taxes would hamper disproportionately attack investment and entrepreneurship and lead to the uber-wealthy simply leaving high-tax states – an argument similar to that often cited when discussing the decline in wealth taxes among nations in the Organisation for Economic Co-operation and Development (OECD). Proponents say no such exodus has or will take place in America in significant numbers, though the threat is always loud.

Still others maintain that wealth taxes are against American state constitutions (as in Washington); even proponents in California admit that their newest proposal has little chance of making it to state law.

Can all or part of a politically split country like the United States – one side claiming to fight for the poor and disadvantaged, the other claiming it speaks for business and entrepreneurism – ever institute something as hot-button as a wealth tax? All we know for sure is that the long debate isn’t over.

Your tax specialist needs to stay on top of this and many other issues of wealth, foreign income and tax enforcement. If we can help, please let us know. Contact Alicea Castellanos.

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