Calls to tax the ultrarich are moving from Washington talking points to state and local ballot fights, creating fresh planning uncertainty for advisors with billionaire and centimillionaire clients.
In California, a healthcare workers union is racing to collect 875,000 signatures to qualify a one-time 5% levy on residents with more than $1 billion in net worth for the November ballot.
Union leaders argue the moment is ripe for a direct hit on extreme wealth. “We’ve tested many different ideas, and the idea that was most popular with voters was a billionaire tax,” said Suzanne Jimenez, chief of staff at Service Employees International Union–United Healthcare Workers West, told the Wall Street Journal. So far, the campaign has attracted thousands of volunteers and paid signature gatherers, with part of its initial $25 million war chest now set aside for rallies and advertising.
Current and former state leaders aren't exactly all-in on the proposal. Governor Gavin Newsom has warned the one-time levy could accelerate the flight of high-net-worth residents. California’s Legislative Analyst’s Office has estimated that while the tax could generate a windfall worth tens of billions of dollars initially, future annual revenue could fall by hundreds of millions or more as wealthy taxpayers leave or adjust their affairs.
“I don’t know that it’s going to be the option that will help us stabilize revenue,” said Betty Yee, the state’s former controller and a Democratic candidate for governor.
Early polling has sent mixed signals. Internal research cited by the union shows nearly two-thirds of respondents favoring a one-time 5% levy on billionaires. A separate survey, commissioned by strategist Mike Murphy for wealthy clients, found support under 50% and opposition nearing 40%.
A Barron's report published Monday cites separate research by ProPublica, which found that the 25 wealthiest Americans paid an effective tax rate of just 3.4% between 2014 and 2018, when measured against increases in their net worth. Along that thematic line, it pointed to a recently published book by tax scholar Ray Madoff, which puts forward a scathing indictment of a largely untaxed aristocracy where "wealthy people who earn salaries pay very high income taxes,” while those whose fortunes stem from investments and inheritances are not taxed so heavily.
The discontent against wealthy individuals – and the associated pressure to extract from them a "fairer share" of taxes – goes beyond California. In Illinois, lawmakers are weighing a mark-to-market tax on unrealized gains for residents with at least $1 billion in assets. Virginia officials are debating new taxes on net investment income for individuals, trusts, and estates, along with other measures targeting top earners. In New York City, Mayor Zohran Mamdani is seeking state approval for a 2% income tax surcharge on residents making more than $1 million a year, while Washington state legislators are considering a 9.9% tax on income over that threshold despite past battles over estate-tax hikes.
Democrats in Congress have revived a Billionaires Income Tax that would effectively tax certain unrealized gains, but the proposal has little chance of advancing with Republicans controlling the White House and Capitol Hill. The Tax Foundation and the Cato Institute have also pointed to the European experience on wealth taxes, noting how idealistic proposals to address inequality have tended to raise modest revenue across the pond while prompting outflows of capital and high-net-worth individuals.
Among other technical snags, a January commentary by the Cato Institute pointed to the inherent difficulty of assigning a value to private businesses, real estate, art, and other illiquid assets on an annual basis.
"Although framed as a narrow one-time levy on 'excessive accumulations of wealth,' the California proposal includes multiple mechanisms that inflate taxable wealth well beyond economic reality," the think tank said. "[T]he rules systematically overvalue voting control relative to ownership, apply rigid valuation formulas to private businesses, impose severe penalties that discourage good-faith valuation disputes, and include anti-avoidance rules written so broadly that they can tax assets no longer owned or wealth that may never be realized."
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