Wave of Tax-Hike Bills to Debut in Statehouses Thursday

Lawmakers in seven states plan to introduce bills Thursday to tax wealthy individuals where they live, in lieu of a federal wealth tax, according to The Washington Post.

“Progressive activists know there’s absolutely no chance that Congress could pass a ‘wealth’ tax, so they are moving to Plan B — a coordinated effort to introduce legislation later this week in seven wealthy states to impose higher taxes on the rich,” Greg Valliere, chief U.S. strategist of AGF Investments, said Wednesday morning in commenting on the Post article in his Capitol Insights newsletter.

According to the Post, legislators in California, Connecticut, Hawaii, Illinois, Maryland, New York and Washington state will release bills “with the same goal of raising taxes on the rich.”

As Valliere notes, in addition to higher taxes on income and capital gains, “the activists are determined to enact a ‘wealth’ tax that would force rich taxpayers to pay taxes annually on assets that they own, rather than just their income that year.”

This idea, pushed by Sen. Elizabeth Warren, D-Mass., “has gone nowhere in Congress,” Valliere said.

Some of the state bills, according to the Post, resemble Warren’s wealth tax.

Anticipated proposals, according to the Post, include:

• Four states will float versions of a tax on unrealize capital gains — so-called “mark-to-market” taxes.
• Maryland lawmakers will propose an extra 1% tax on top of the state income tax rate on certain capital gains;
• Bills in Hawaii, Maryland and New York will propose lowering the estate tax exemption, “a measure that would affect more significantly a middle tier of rich people, not just the ultrarich”;
• Democrats in Connecticut, Hawaii, Maryland and New York hope to close what they say is a disparity in the highest earners paying a 20% tax on capital gains while paying a 37% tax on wages.

The wealth tax proposal “failed to get a majority of Democrat support at the federal level” for several reasons, according to Jeff Bush of The Washington Update. “First of all, the complexity of assessing the value of assets annually. Secondly, taxing one’s assets vs. income (earned or passive) doesn’t pass the smell test for most.”

Said Bush: “Take a family farm as an example. They may be land asset-rich but cash poor. Is the farmer expected to sell an acre of land each year to pay the taxes? The federal proposal had a carve-out for family farms and small businesses, which, in practice, would be hard to define and administer. States will have to deal with this issue as well.”

State tax commissions, Bush continued, “would, in essence, have to audit each family suspected of exceeding the threshold annually or rely on self-valuation. State tax authorities don’t have the staff or expertise to conduct this work. Self-valuation’s challenge is evident.”

If states pass such measures, “the rich,” Valliere said, will “continue moving to low-tax states like Florida and Texas. The exodus could continue in California, where activists want to impose a 1.5% tax on assets of $1 billion or more.”

Bush agrees. “High-income persons are moving from high-tax to lower-tax states at a record clip. This tax approach would only accelerate that process.”

According to Valliere, New York would impose “an extra 7.5% tax on capital gains for married couples with income above $550,000, and 15% for couples with income above $1.1 million. One can only imagine the reaction from people in New York City who would be classified as ‘rich’ with annual income of $550,000, over half of which is gobbled up by taxes already.”

The bottom line, according to Valliere: “Congress won’t raise taxes in the next two years — simply continuing the Trump tax cuts that expire in two years will be tough enough. But if the states, now flush with money, begin to falter in a recession, tax hikes might be on the table.”