Tax the rich? Liberals renew the pressure for state wealth tax

Proponents of taxes on the very rich argue that people will emerge from the COVID-19 pandemic with a greater appetite for what they call “tax fairness.”

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

All the proposals face dubious prospects. Similar legislation has died in state legislatures and Congress. But the new push shows that the political left is not ready to give up the populist argument that government can and should be used as a tool to redistribute wealth.

“During the pandemic, while people struggled to put food on the table, we saw billionaires double their fortunes,” said California Assemblyman Alex Lee, a Democrat.

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

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

“Very few taxpayers would waive wealth tax — but many more would pay the price,” the group said in a statement. Progressive Democrats, however, claim they don’t see rich taxpayers leaving their states because of higher taxes.

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

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-millionaires” 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 capital gains tax rate for wealthy taxpayers and higher personal income tax rates for millionaires,

“We need to make sure the wealthiest in our state really do 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 Democratic-controlled House. Representatives.

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

Connecticut is expected to end the fiscal year with a $3 billion surplus. Hawaii projects a $1.9 billion budget surplus entering the new legislative session.

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

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

The lowest-paid workers in many states often see a far greater percentage of their income go toward paying taxes each year than the very rich, especially in states that do not 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.

“This ‘tax the rich’ thing has been around before, and it’s around again. And quite 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 dislike the rich as much as some progressive Democrats.

“I think if you asked the American people, a lot of people want to be rich themselves, and that’s part of, if you will, the American dream,” Rose said. “We’ve never really in this country had a huge appetite to tax the rich because getting rich … is really part of who we are and what separates this country from a lot of democratic socialist countries.”

A property tax bill in California never received a public hearing last year. Gov. Gavin Newsom, a Democrat just re-elected to a second term in a landslide, has actively campaigned against attempts to raise taxes on the wealthy.

His opposition helped sink a 2022 ballot initiative that would have raised taxes on 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 his second term on lowering taxes rather than raising them.

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Associated Press Writers Audrey McAvoy in Honolulu, Hawaii and Adam Beam in Sacramento, California contributed to this report.

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