State-Level Wealth Tax Plans

State and local governments are facing unprecedented revenue shortfalls in the wake of the COVID-19 pandemic. Like the federal government, states have grappled with sky-high unemployment and widespread business closures in the past months. In response, states like New Jersey and California have proposed variations on a “wealth tax” to help with the shortfall. New Jersey, for example, would increase the state income tax rate on income over $1 million by nearly 2%. Conversely, families who make under $150,000 per year would be eligible for a $500 rebate. California would increase the top state income tax rate from 13.3% to 16.8% and impose a 0.04% tax on all net worth over $30 million.

We asked two professors and authors of ALM’s Tax Facts with opposing political viewpoints to share their opinions about whether imposing a wealth tax at the state level is advisable.

Below is a summary of the debate that ensued between the two professors.

Their Votes:

Bloink

Byrnes

Their Reasons:

Bloink: These wealth taxes shouldn’t be a surprise to anyone. At both the state and federal levels, government spending has skyrocketed while tax revenue has fallen dramatically. The money to keep the doors open has to come from someplace—and the middle class is already struggling enough. States like New Jersey and California are stepping in to take action where the federal government has been unwilling to act.

Byrnes: All these taxes will do is encourage wealthy taxpayers in high tax states to move. Wealth taxes like these punish those who have worked hard and experienced success even in challenging economic conditions. Imposing yet another tax on this group will have a negative impact on everyone, even the middle-class taxpayers these taxes are designed to help.

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Bloink: The wealthy are the least likely to pay their fair share in taxes. Those with astronomical wealth are the most able to manipulate income to avoid paying any income taxes at all. Even when their income is taxed, it’s at a rate that’s only a few percentage points higher than those applicable to average hardworking Americans who are struggling to make ends meet. A wealth tax like this is a step in the right direction toward making sure the wealthy are required to pay their fair share.

Byrnes: Successful taxpayers already pay taxes at the highest rates in the country, both with respect to income taxes and capital gains taxes. They’re punished for selling assets they’ve worked hard to acquire—a type of double taxation when you figure that the income used to buy those assets was already taxed. Imposing yet another tax on this group is patently unfair when the entire nation—even the wealthy—continues to struggle with an unprecedented pandemic.

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Bloink: The New Jersey plan to raise taxes on income in excess of $1 million would raise a tremendous amount of revenue at a time when it’s sorely needed. California’s plan would go even further, taxing accumulated wealth. States aren’t trying to punish the wealthy. They’re trying to help taxpayers who can’t pay their bills and put food on the table through no fault of their own. They’re trying to keep government services operating. The wealthy have to be held accountable for paying their fair share.

Byrnes: We’re talking about the Americans who are most likely to own a business and invest in the economy. These are the taxpayers who are going to create jobs and get America back on track again. Punishing them now won’t help anyone—especially not the residents of those states, who will see jobs and business move to lower tax states in response to these socialist tax plans.