Yves here. While the intent of the State Revenue Alliance, to increase state taxes on the very rich, is estimable, the post below suggests that despite putting a lot of effort into this campaign, and even getting some new legislation, they don’t appear to have a sufficiently strong grasp on the enforcement and legal, including Constitutional, issues that can and will throw very big monkey wrenches into their initiatives.
Mind you, there are some ways of taxing the rich more that would not be difficult to implement, such as a surtax on capital gains or a state property tax surcharge on high value real estate (note this would not fly in California due to Proposition 13, which limits property taxes). So the general idea does have merit and can extract some more goodies from the well off. And perhaps because this piece was for Common Dreams, it took a cheerleading approach.
However, the part that gave me pause was the enthusiasm for wealth taxes. The article below suggests that they are the top target: “Those bills included wealth taxes; corporate tax reform; reinstatement or creation of capital gains taxes; repealing certain tax breaks, which too often allowed the wealthiest to shield their assets…”
Many countries that had wealth taxes have ended them, due to difficulties with measurement and enforcement. And an annual wealth tax, even if it can be made to work, is inefficient compared to estate taxes, which hit the same wealth at a transfer point (to heirs and charities) and is much cheaper to implement due to being assessed less often. Rates can be set higher to compensate for the lower frequency of imposition.
Why are wealth taxes very difficult to administer? Unless the super rich person owns mainly market traded securities, it is very difficult to determine what their holdings are worth. For instance, when different private equity funds hold a stake in the very same private company, they often give different, and not infrequently VERY different, valuations to fund investors (x to 3x is not unheard of). Keep in mind the IRS has lost literally every suit over large estate valuation since Estate of Newhouse v. Commissioner in 1990. Think states will fare any better in these pigfights than the IRS?
That’s before the wee problem of even locating and identifying assets if the taxman thinks the rich person is not being forthcoming. And what about crypto? Wellie, that is in the process of being nailed down by the IRS. From KPMG:
The IRS has expanded reporting requirements for digital assets, ushering in a new era in cryptocurrency taxation. For a sense of the scale, by 2027 the IRS expects eight billion Forms 1099-DA to be filed annually—more than all other Forms 1099 put together.
The rules introduce a phased approach, beginning with gross proceeds reporting in 2025 (filed in 2026), followed by cost basis reporting for assets acquired on or after January 1, 2026. Taken together, they may require substantial adjustments in reporting practices and systems for many businesses now dealing with crypto transactions.
Now of course, this does not stop crypto holders from storing their digital assets only locally and transacting only with counterparties outside the reporting sphere…which substantially limits who one can trade with. It is beyond the scope of this post, but the OECD is in the process of implementing a Crypto Asset Reporting Framework for OECD members to share data about crypto transacations. This initiative appears to be pretty far along. An early October release provided the IT format for providing data as well as interpretative guidance. So crypto is soon to become much less viable as a tax avoidance scheme than it now is.
But back to the main event, state taxation of the very rich. A failed exit tax bill in California, AB 259, gives an idea of the obstacles (mind you, this is all assuming it had become law). It would have taxed worldwide net worth of rich Californians for four years after the left the state, 1.5% each year for amounts over $1 billion initially, with a lower tier of 1% tax for net worths of $50 million to $1 billion added in 2026.
California does have a big enough tax bureaucracy so as not to make an idea like this crazy on its face, and the bill also allotted a lot of funding to hiring or contracting with valuation experts. But putting aside the fact that the IRS has lost every contested estate valuation case for 30+ years, any state wealth or merely specific group-targeting tax raises US Constitutional issues, including:
The commerce clause. In crude layperson terms, states can’t interfere with interstate commerce. Without getting into many hypothetical cases, a tax on the personal wealth of a resident billionaire who held interests in private businesses that crossed state lines (and most would) could be challenged for incorrect apportionment for California activity under the bill. Moving the business would be interstate migration of capital that the commerce clause says cannot be taxed without apportionment for California activity.
The privilege and immunities clause, Article IV, section 2: “The Citizens of each State shall be entitled to all Privileges and Immunities of Citizens in the several States.” Citizens of other states should have free entry and exit, and the right to do business in state without more onerous taxation than residents. This means in practice if a state discriminates against the residents of another state, it must have compelling reasons to do so. That won’t apply to taxation of resident’s wealth, but has the potential to implicate certain types of cross border activities, as well as arguably unduly punitive discriminatory treatment of ex residents. For instance, New York tried to bar nonresident taxpayers from deducting alimony payments from taxes The Supreme Court invalidated the New York rule.
Equal protection. This might seem like a strain, but tax experts argued it could be an impediment to AB 259, and it could also be to other less-than-carefully-thought-out state wealth tax schemes. In crude terms, the state must have a legitimate purpose behind tax classifications and they must not be applied in an economically discriminatory manner (broadly similarly situated parties must achieve broadly similar results). It’s a comparatively penny ante matter, but New York City had its commuter tax overturned, and equal protection was one of the reasons.
So perhaps these advocates do have a finely honed idea of the tax, as well as political, hurdles they face. It would be nice for them to show that in their public relations product.
By Amber Wallin, the executive director of the State Revenue Alliance and their affiliate, the Alliance Action Fund, national nonprofit organizations that support tax justice campaigns and revenue policy advocacy in the states; she has over a decade of experience focused on tax and budget, economic justice, education, and health policy issues. Originally published at Common Dreams
After every big election, there’s a spotlight on the candidates that came out on top: Who’s in and who’s out, talk about mandates, seat margins, and the First 100 days.
There’s plenty of policy previews about next year.
But one issue will have a starring role both in Washington, D.C. and in states across the country—taxes.
We know Republicans in Washington are writing a play to extend and even expand President-elect Donald Trump’s 2017 tax cuts. And nearly every state will have to adapt to additional fiscal pressures while also finding ways to pay for the things our families and communities need.
Past sessions foreshadow how anti-tax elected officials around the country will act on behalf of their donors: Each time Republicans have held a trifecta in Washington this century, they’ve demanded tax cuts for the rich. During Covid-19, 26 states cut taxes, often targeting top earners, which will cost $124 billion by 2028.
We’ve seen this show before and it stinks.
The plot is tired, unbelievable, and relegates voters to a bit part, when it’s our communities that should be the lead. How many times do we have to listen to the same trickle-down economic nonsense? It’s getting old.
Polling shows that voters would rather politicians play it straight and raise revenue from big business and the wealthy rather than feel the squeeze as tax cuts lead to budget cuts to the programs and services our kids and communities need most.
Flipping the script on tax cuts for the wealthy is a core reason the State Revenue Alliance was created. Voters feel the economy isn’t working for them and want corporations and billionaire CEOs to pay their fair share. Ultimately in 2025, it’s the people who’ve too often been shut out of policy debates who will fight for tax justice and change the trajectory of tax policy in this country.
Knowing that 2025 would see a confluence of tax fights at the state and federal level, state-based advocates have spent years building coalitions of pro-revenue champions committed to working together and will have the resources to fight for good schools, housing affordability, and accessible healthcare in legislatures around the country.
Together, we’ve made real, tangible, and, yes, sustainable progress in our collective efforts to win pro-revenue policies. In 2024 alone, state-based grassroots organizations, labor groups, policy shops, and legislators supported 35 tax justice bills in state capitols. Six of those bills passed and were signed into law. Those bills included wealth taxes; corporate tax reform; reinstatement or creation of capital gains taxes; repealing certain tax breaks, which too often allowed the wealthiest to shield their assets; and more.
In anticipation of this year, we are already tracking nearly 50 tax justice bills filed in state capitols. When legislative sessions open early next year, our allies will be ready, putting forth a compelling case for ensuring the wealthiest and big corporations pay their fair share at the state level so everyone has a fair shot to survive and thrive.
Rather than divide us, taxes will be an issue that unites community voices across the country in 2025. In addition to our focus on tax justice in states, we will join hundreds of national organizations to demand Congress forgo any additional tax cuts for the wealthy and advocate for new revenue.
An extension of the 2017 Tax Cuts and Jobs Act (TCJA) will further reward the wealthiest individuals and big corporations with myriad tax breaks and benefits. We know it will come at the expense of working and middle-class families, costing us an estimated $4.6 trillion over the next 10 years. Extending the TCJA also puts additional strains on states and localities to make up potential funding gaps, as they rely on federal dollars for everything from schools to healthcare, critical infrastructure, and more.
We know the vast majority of Americans want the rich to pay more, not less, in taxes—at both the state and federal level. It’s time for elected officials to give the people what they want after years of disappointing performances.
As storylines develop following the 2024 election, progressives should consider the action in the states around taxes—who pays what they owe, who benefits from them, and whether or not they raise the revenue to fully fund our futures—as the biggest and most unifying fight on the horizon.
If we are successful, 2025 will reveal a more just, equitable, and sustainable tax code that helps build the future our communities deserve.
The truth is that all of these tax plans will be forever expanded until it steals from the middle class as well to give it to the poor.
Wealth tax! Everyone says yeah that isn’t the top 1%. Then next years budget deficit hits and it’s the top 2% and then the top 5%
Illinois tried to make a progressive income tax that would have cost me another $1500 a year on an income just under $100K with a ton or more giveaways to the so called poor. Chicago failed to increase property taxes for now but increased fees and taxes on a whole host of goods and services used by most of the public. Again with that income destined to be handed out to lower income.
It never ends. Just like Ole Bernie couldn’t guarantee that the middle class wouldn’t see increases to push his agenda.
As for the TCJA, while the rich certainly get more benefit it still put another $2500 a year back into my pocket. Why should I be happy to give that up and put it back into a government that really doesn’t benefit me at all?
I dislike Trump and most of the right with a passion but it’s not hard to understand why he won when the D’s are spending all their time to transfer my money to the poor and trying to tell me they know better.
Not true about the proposed Illinois graduated tax rates
It is true. The “Fair” tax was first introduced in 2014, then reintroduced in 2015, 2016 2017, and then by Pritzker in 2018. The Illinois income tax rate was increased from 3.75% to 4.95% in 2018. So basically they raised it by 1.2% then told you that it wouldn’t go higher under the fair tax All to give taxpayer money to people that aren’t worth the air they breathe …….
people that aren’t worth the air they breathe ……
I think that says all that needs to be said.
Well! It’s prudent to drop from the ranks of the middle class to enjoy future nanny state privileges then, innit?
I might add from my view here of city shenanigans from the cheap seats, the income destined for the poor may take a circuitous route thru a slush fund which eventually provides some poor folks pennies on the dollar.
Is this what it means to be socially liberal and fiscally conservative?
Doesn’t being “socially liberal” simply mean the support of slicing us plebs into ever narrower identity groups in order to be more easily divided?
Correct. And that’s the point.
I really vibe with the MMT lens of taxes where they should function as a reduction of buying power rather than a redistribution.
If income tax is handicapping the buying power of the middle class more than those with higher income then it isn’t designed properly.
It’s interesting to me that tax rates tend to stop increasing at an arbitrary amount that allows for a significant amount of income to be taxed at that bracket.
In Canada for example, the average income for someone in the top 1% (2020) was $500,000. Anything above like $250,000 is taxed at the same rate. The average for the top 0.1% (40k people) was $3,230,000 and the average for the top 0.01% (4k people) was $12,542,100.
This means that 40k people are making an equivalent of 29 average annual incomes, and that 4k people are making an equivalent of 110 average annual incomes.
Should there not be a more flexible tax bracket system to account for the fact that the top 1% make vastly more than the top income threshold tax bracket?
If your income is above $1,000,000 then it increased further, and if it’s above $5,000,000 even further?
Not to mention that excess income above the basic income required to survive is not a linear increase in spending power. Someone making the average salary is barely surviving, where someone making $40k more is still struggling to afford certain assets, and someone making $40k more than that, not to mention $3,000,000 more, is likely able to outprice the lower income people in so many ways.
Idk, I’m just spewing thoughts about inequality here. I’m no economist.
I always understood the reasoning coming from the point of view of taxes as a way to raise revenue – increasing the rate of the very top of the distribution doesn’t ‘raise’ a lot of money because there aren’t that many of them, and if the rate gets too high, they can afford to restructure the income flow to avoid it. Now if you though about taxes as a way to drain excess funds out of the economy instead, the argument for increasing the top rates becomes more supportable. If nothing else, it gets the message out that $10M+ incomes are ‘bad’ – as in not good for society,
As I understand it, the bottom 20% of Americans are paid (before tax) less than 5c out of every dollar of income generated in the economy and after taxes and transfers end up with only a couple of cents more than they started with. Meanwhile the proportion of total income that goes to the top 20% has increased continuously since the late 70s to the point that it has now topped 50 cents in the dollar, including a full doubling of the 1%’s share to 14-15c. But by all means punch downward. The few cents in the dollar that you could keep in your pocket by zeroing out every program that benefits the poor would surely improve your life, right ? Except that the 1% are still abundantly unsatisfied with their share and you’re making a world in which their power to demand more is only increased. In ten years time, when the 1%’s share is 20 cents in the dollar, you’ll be wondering why exactly it is that your living standards have gone down rather than up.
The cynical presumption of bad faith (“the so-called poor”) is the greatest tragedy of the commons. We can’t help each other because the other is so dishonest. Any tax is suspect. Any program of assistance is bound to simply reward the scamsters…maybe even [gasp!] Cadillac welfare queens!
Really, there’s no answer to this. It’s been cultivated by the likes of the Kochs, but now it’s infected even the tiny sliver of population that might be called “lefties.” Divide and rule is the message. The triumph of division is complete!
Unfortunately it looks like our governor in the state of WA is not on board with this. Our new Democratic governor is embracing austerity rather than tax the rich, despite these taxes having 65% public support:
https://www.seattletimes.com/seattle-news/politics/ferguson-opposes-wealth-tax-calls-for-spending-cuts-but-boost-for-k-12/
No doubt a few of Washington’s 13 billionaires got to him. It’s very disappointing as the outgoing governor Jay Inslee had supported it (although one has to wonder why he didn’t implement it while in office). I expected better of Ferguson.
he sees how much cantwell and murray are raking in and he wants some of that action?
(he’s looking up…)
As AG, Fergie was willing to use the stick so he’s probly got a reputation as a “regulator”
How the west was won…
Junior Captain Planet won’t solve any problems.
Regading enforcrment, the MbS way is quite attractive: water boarding of the billionaires in a luxury hotel until they transfer the necessary needs. Just as there are a lot of people that would happily go out shooting poor people, there are a lot of people that would be happy to waterboard billionaires.
Forbes is gratutiously providing the list of the VIP guest to this hotel.
IMHO there are a lot more people willing to go after billionaires than poor people (aside from the police).
Here’s a fairly easy way to start easing the inequality: Legislate tax hikes only in percentages and tax cuts only in dollars.
A 1 percent hike in taxes would mean $500 on a $50,000 income but $50 million on a $5 billion income.
A $5,000 tax cut would mean no taxes due from anybody under $50,000 and not even spare change for a millionaire.
There’s an easier way to tax the rich than the wealth tax. Most of the world’s private jets are in the United States. Tax those owners.
No, they are nearly all owned by corporations, particularly private equity firms.
Maybe now is the time to take another look at Lloyd George’s single tax on land ?
Think you mean Henry…?
What about if we taxed Boy George on make-up and fancy hats?
Stephen, you are correct. The single tax was the idea of Henry George.
I got the name wrong.
Simply adding stocks, bonds, etc.property to the property tax would go a long way toward raising more taxes from the rich.
No, that is not correct. Much of the wealth of the rich is in private companies.
In California there is no capital gains tax rate. All capital gains are treated as ordinary income.
This clearly hits the rich more than the poor or the middle class. While MY capital gains are small, I do admit that in April of each year, I wish that were not the case. Like everyone else I want to tax “the other guy”.
This is one reason that thousands of wealthy Californians have moved to Texas and Tennessee and other no-income-tax states in the past year.
C’mon commentariat. Help me –Tax Master’s Degree dropout. Corp tax cuts is a trope. But please, for the love of Truth Justice and the IRS check this out [it’s got Trump’s name on it but…]
https://bipartisanpolicy.org/explainer/the-2025-tax-debate-gilti-fdii-and-beat-under-the-tax-cuts-and-jobs-act/
LOOKS LIKE A CORPORATE TAX FUNDRAISER TO ME.
I think the Chinese sorted this; they take the wealthy person into custody and squeeze him. The Russians do the same. Mr. Musk finds himself sitting in the nearest SuperMax where he is asked to contribute to the budgetary needs of his fellow citizens. At some point, like the sheep being sheared for fleece, he is released to grow more. After all, he is proven to be good at it. Eventually, he is caught once again and encouraged to contribute again. Rinse, repeat periodically.
No, not suggesting this be done, merely saying this frees the IRS from having to identify assets and collecting a share because letting the owner of said assets do it themselves makes it all happen more quickly. Come to think of it, I think a reverse-version of this has been traditionally run by Sicilians where the practice is known by a different name, the protection racket. The reverse being they don’t pony up to keep the bar from being burned down, they instead pony up a fair share to protect themselves from enjoying the SuperMax any longer than is strictly necessary. After all, how long can it take to remind them of what happens if the key gets lost!
Bottom line? Where there’s a will to collect taxes, there’s a way.
Doesn’t have to be this way. In ancient Greece rich people vied with each other to contribute to the State as a way of showing that they were the leading citizens and had the receipts to prove it.
Same for potlatches in the PNW.
Sure. If you believe that practice survived statehood, I have some blankets I can loan you. The idea is poisoned when the immigrants won’t hold values with the native population.
There is a bit of paradox here, though: the upper class in ancient Greece owned the state, so to speak. They had to be responsible, for the long term. What they do for the state comes back to them tomorrow.
The upper classes in the West don’t own the state: they just rent it short term. They don’t mind it returning it broken and used up to whoever that nominally owns it–the people. They don’t care what happens tomorrow because it’s not theirs.
“And an annual wealth tax, even if it can be made to work, is inefficient compared to estate taxes, which hit the same wealth at a transfer point (to heirs and charities) and is much cheaper to implement due to being assessed less often. Rates can be set higher to compensate for the lower frequency of imposition.”
In here is your solution, previously provided in comments, since a wealth tax can be assessed as a percentage lien, settled on transfer, which makes it as efficient as an estate tax, but as frequent as transfer rather than death.
They are already subject to capital gains tax on transfer.
Trump has proposed a 25% tariff and at first I thought it would be inflationary and a bad idea because I read the New York Times. But I also live in Europe and I realized that we are paying a 20% VAT tax on everything, goods and services. It seems easier to collect. It does not keep people from going out to eat. And when I am in California they have a 11 per cent sales tax and people get used to it. Raising taxes on stocks and bonds is often proposed. Problem is that most of the gain on stocks and real estate is due to government induced inflation. They should correct the gain for inflation and if they do that it might be more palatable. And all the evidence suggests that whatever we are paying is being wasted on public servants making far more than we taxpayers, projects like the homeless and drug addiction that do not seem to ever improve, and endless war. And then we see the really rich paying very little in taxes. No wonder people feel like they are overtaxed.
And if we want to control tax expenditures we have to have all voters pay something. The notion of giving voters money in return for their votes encourages more waste. If someone making minimum wage knows they have to pay income taxes meaning take money out of their pocket in April they will remember that in November. So legislators would waste tax money at the peril of getting voted out. Now the mass of voters pay no income taxes and just pay sales taxes. they file a federal return and get an EITC. That is not taxation. That is a giveaway. If the government wants to give people cash that is fine but make it clear and do not mix it up with taxes. Everyone should pay income tax no matter how little it is. It is like a draft. People will protest war if their kids are getting killed and wounded over there. Otherwise people just do not care.
Having some understanding of these matters, I find myself agreeing with the view that focusing on wealth taxes is a misallocation of resources by groups such as the State Revenue Alliance. As Ms. Smith notes, there are potentially numerous and significant constitutional arguments that would prevent state wealth taxation. On the Federal level, there are significant realization issues that I believe would ultimately prevent a wealth tax. Believe me, forests have been felled to print articles on these issues.
Being somewhat of a cynic, I also believe that, on the national level at least, focusing on wealth taxation is a way for elements of Team Dem to avoid real tax reform. If Team Dem ever gets in a position to implement a wealth tax (haha on that), they will implement the wealth tax only for it to be rendered asunder by the Supreme Court on the shoals of Eisner v Macomber. Then Team Dem will give us a long face and say, “you know…we really, really tried … Sorry…” and skip happily away. Thus, Team Dem will have wasted (prevented?) a true tax reform moment. Mission accomplished.
In past NC comments I’ve set out an extensive list of tax reform items that I think would amount to a significant improvement in US tax fairness. In past NC comments I’ve also noted that a well-regarded tax professor some time ago wrote that US income inequality is worse after taxation than before taxation (which means Uncle Sam is shoveling money to the wealthy). So, I truly welcome the involvement of organizations like the State Revenue Alliance in political activities pertaining to taxation. I just don’t think they (or anyone else) should waste resources and political capital on trying to implement a wealth taxation regime, particularly given that there are so many tax reforms that could be implemented that would not be subject to being overturned by the courts.
Finally, and as an aside, I did want to note that despite 30+ losses in the estate valuation field, the IRS did win a very notable interest rate swap derivatives valuation case in the 2000s and from there drafted regulations that basically implemented that victory.
From my perspective, living in the state of CT, I would say the really wealthy don’t care anymore. The state is run for the benefit of the unions and the bureaucracy. When the article says wanting good schools, in CT this would be interpreted as paying above market rates for school construction to ensure contracts to preferred in-state contractors who are mandated to employ locally sourced union employees. All of which drives up costs at taxpayer expense, but provides good paying jobs to others. Many companies in the insurance industry have moved out of the state over taxes. My employer closed business operations, in part, due to CT’s data processing tax. The wealthy aren’t waiting for political change to bring about changes to the states cost structure and mandates, they are just moving away.
In this past election, Trump performed very well in New Jersey and New York. I think this surprised many in the Northeast and is fueling concern of red encroachment in what has always been comfortable blue territory. As employers moved out of CT, many of the displaced workers went to work for the State thus fueling the need to raise more revenue. The wealthy are resistant to taxes, taxes are straining the middle class who are feeling the added cost pressures daily, the unions are on record stating when aren’t going to bend when the states wealthy are so well off, and the Democrat governor, who is a wealthy ex-business owner, has sided with the wealthy on the issue of taxes over fears of exodus from the state. Interesting times ahead.
Yves mentions prop 13 in California. Not mentioned: there’s a huge loophole in that proposition for commercial property. If a homeowner sells a home, it’s reassessed at the sale price, so the taxable amount (typically) steps up. However, if less than half of a commercial property changes hands, no reassessment occurs. So when Michael Dell purchases a Santa Monica hotel, and splits title between himself, his wife and a corporation he controls, it remains assessed at 1978 values. (1978 is Prop 13’s origin). There’s a patchwork of such legacy properties throughout the state, and it’s estimated $12 billion in additional tax would be collected annually if the loophole were closed.
Anti-tax sentiment is so strong now, though, that a proposition to close the loophole (Prop 15) failed at the polls. Make it fair CA was the movement. Not even the web page survives now.