Progressive lawmakers say wealth taxes will remain a centerpiece of their platform for the next Congress, despite mixed results at the state level in the midterms.
California voters rejected a one-time 5% tax on billionaires’ assets. North Carolina also voted to cap its income tax rates. Meanwhile, Washington state chose to keep its millionaires income tax.
Progressive lawmakers on Capitol Hill, who see taxes on the wealthy as a critical potential source of revenue for delivering on their social agenda, argued the midterms showed voters rejecting inconsistent state levies that may drive business from their state — not a position on federal action.
“Sometimes the resistance and the arguments against these wealth taxes on the state level is this notion or this suggestion that people would move around,” said Rep. Alexandria Ocasio-Cortez (D-New York), who has long advocated for taxing the rich at a higher rate. “However, a federal wealth tax leaves people no place to go, and so I actually think it takes away a lot of the excuses from opponents of a wealth tax on the state level.”
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Billionaires mounted an expensive opposition campaign to defeat California’s ballot measure, raising more than $379 million, including more than $100 million from Google co-founder Sergey Brin.
That campaign warned that taxing the state’s wealthiest would drive business away. At least six billionaires left California last year to avoid the potential wealth tax, including Brin and co-founder Larry Page.
Democrats acknowledged those results but don’t see the outcome as a warning sign for the broader wealth tax push.
“[There are] people who may have voted against it, who think that we need to do something federal so that all the states are on equal footing,” said Rep. Laura Friedman (D-California), whose district lies in Los Angeles County. “So I wouldn’t extrapolate from that particular ballot measure.”
Los Angeles County voted in favor of the one-time wealth tax.
Rep. Pete Aguilar (D-California), a moderate who chairs the House Democratic Caucus, also argued that Californians “are supportive” of wealth taxes broadly.
“We just don’t want to chase people out of our state,” Aguilar said.
Avoiding a federal wealth tax would be much harder. The U.S. typically taxes citizens regardless of where in the world they live. Wealthy Americans seeking to avoid wealth taxes might have to renounce their citizenship to do so.
Progressives have long argued that taxing the wealthy is politically popular. Most Americans believe the wealthy and corporations do not pay their fair share of taxes and should face higher tax rates, according to polls by the Pew Research Center.
Wealth tax proposals have proliferated in Congress. Sen. Elizabeth Warren’s (D-Massachusetts) Ultra-Millionaire Tax Act would charge the top 0.1% of households a 2% annual wealth tax on every dollar of net worth above $50 million, with an additional 1% surtax on every dollar of net worth above $1 billion. Warren’s bill has collected dozens of co-sponsors in both chambers.
Sen. Bernie Sanders (I-Vermont) and Rep. Ro Khanna (D-California) introduced a bill to levy a 5% annual wealth tax on billionaires — a more stringent proposal than California’s one-time tax proposal. Both Warren’s and Sanders’ bills would in part fund expanded child care and Medicare as well as home construction.
At the state level, even Democratic Gov. Gavin Newsom expressed his opposition to Proposition 40, citing concerns about billionaires leaving California in a June post to Substack. Newsom wrote that the wealth tax fight “belongs at the federal level.”
“When the Democratic governor of the state is against the proposal, I think it’s difficult to unite the political constituencies you need to bring it over the finish line,” said Alex Jacquez, the senior vice president of policy, advocacy and research at the progressive Groundwork Collaborative. Jacquez added that the defeat wasn’t a “barometer for how a federal wealth tax could fare.”
Rep. Becca Balint (D-Vermont) attributed Proposition 40’s defeat to billionaires’ massive spending campaign.
“I don’t want the lesson to be that we can’t have a fairer tax code,” Balint said. “We can’t play small ball because we’re afraid of that money coming in.”
“The best thing that we can do is continue to put forward our ideas while also working really hard on campaign finance reform,” she added.
Some lawmakers said they expected federal wealth taxes would face challenges of their own. Proposition 40 and other wealth tax proposals involve taxing assets like stocks that may have increased in value on paper, but their owners have not sold the asset and made a profit. Implementing a wealth tax may also require government officials to develop ways of assessing the value of assets like artwork.
“There were some imperfect pieces of [Proposition 40], and I think when you start taxing unrealized assets, it gets very difficult. But just from a broader perspective of taxes in general, I think having it at a national level would be much more, much better than just a state-by-state solution,” Aguilar said.
Aguilar said he would be open to alternatives, like raising capital gains taxes.
Many policy experts raise concerns about the legal challenges that a wealth tax would create. Tax Foundation senior fellow Jared Walczak noted that the U.S. Constitution requires the burden of “direct taxes” to be split among states in proportion to their populations. Income taxes are indirect taxes.
“A wealth tax is pretty clearly a direct tax, and that means it has to be apportioned, and definitionally that’s not possible with a wealth tax. You can’t base a wealth tax on an equal share based on population of all individuals in the country, because then you’re no longer taxing the wealth of wealthy people wherever they are,” Walczak said.
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