“The point here is to make sure that we do at the state level what is not being done at the federal level,” said Gustavo Rivera (D-N.Y.), a New York state senator who is part of the G-7.
Some of the state’s bills resemble the “wealth tax” introduced by Sen. Elizabeth Warren (D-Massachusetts) during her 2020 presidential run. It’s a form of taxation never before attempted in the United States, where the very wealthy have to pay taxes annually on the assets they own. They own it, rather than just their income that year. Other bills focus on raising money from more traditional forms of taxation, including capital gains taxes and property taxes.
State lawmakers say they want to try out such ideas as a test case for future national policy as they collectively work to reduce the risk of people moving to a neighboring, lower-tax state.
“States are laboratories of innovation,” said Noel Frame (D-Washington State Senator). But taxes are different. That’s why we’re all here together.”
She added that countries are no longer “competing against each other”.
The sponsors told the Washington Post they will field their Bills Thursday in California, Connecticut, Hawaii, Illinois, Maryland, New York and Washington, and shared the text of their drafts.
Recent history suggests that more traditional taxes, such as Connecticut’s proposal to create new tax brackets for the wealthy, may have a better chance of passing than untested wealth taxes. In Washington’s recent legislative session, for example, a wealth tax bill sponsored by 12 of the Senate’s 49 senators failed to advance, while the state’s capital gains tax increase passed, but faced a court challenge. A California wealth tax is similar to the one Alex Lee (D) plans to introduce this week with just five of the state’s 80 state assembly sponsors last year.
Wealth tax skeptics, for their part, say the idea may be worse at the state level than at the national level, as the rich can easily move to another state.
“High net worth individuals are somewhat mobile, and it’s easier to change residence to another state than to leave the country,” said Jared Walchuck, who works on state tax policy at the right-leaning Tax Foundation.
Walchuck notes that the California wealth tax proposal — which would remain in effect for several years after a resident moves out of the state — will almost certainly be challenged in court. More generally, any wealth tax that draws revenue from a small group of the state’s richest people could easily unravel if one or a few wealthy people decide to relocate, he argues.
In addition, he says, assessing the value of a person’s wealth would be challenging for state bureaucrats and sometimes lead to unfair results, as in the case of Silicon Valley founders, whose companies may have huge valuations on paper that are difficult to value or tax. directly.
“Just because a company could sell for hundreds of millions of dollars in the future doesn’t mean its current owners have any significant wealth,” Walchuck said. He added that the net worth of billionaires on paper fluctuates wildly as companies’ share prices go up or down, making it difficult to know how much they would have to pay if that wealth was taxed.
But Frame, the Washington lawmaker, argues that billionaires should still be taxed on such holdings even if they don’t have the money in their bank accounts. After all, property taxes go up when homes are appraised at a higher value, even if residents don’t actually see that money without selling the home, she notes.
Emmanuel Saez, a Berkeley economist who helped design Warren’s wealth tax proposal, said state lawmakers have begun calling him to ask how they can introduce a similar tax in their states during the 2020 presidential campaign. He helped craft changes to the wealth tax that are scheduled Its proposal this week in California, New York and Washington states.
He said he had no objection to a tax that might force the wealthy to sell stocks or other assets. In the case of California’s proposal, which imposes a 1.5 percent tax on $1 billion in assets, “you would sell 1.5 percent of your stock and pay the tax,” he said. “If it’s an annual wealth tax, it takes away a fraction of your wealth each year. Almost by definition, you’ll have less wealth after you pay the tax.”
A new look at capital gains
In four states — the three that drafted bills with Sayz’s participation, along with Illinois — lawmakers say they will float versions of the wealthy’s estate tax, or so-called “market-to-market” taxes, on their unrealized capital gains. But other states will put forward more traditional tax proposals.
Lawmakers in Connecticut, for example, would consider raising income taxes on high earners, such as District of Columbia And New York has done in recent years.
Meanwhile, lawmakers in Connecticut, Hawaii, Maryland and New York are proposing a change based on some Democrats’ frustration with national tax policy. The federal government taxes capital gains — the income a person makes from selling stocks or similar assets — at a rate separate from other income. The highest earners pay a 20 percent tax on capital gains while they pay a 37 percent tax on wages — a disparity that some Democrats want closed.
These lawmakers argue that if federal rates on capital gains are lower, then state rates on capital gains should be higher.
Rivera’s New York draft law, shared with The Washington Post, reports that 19 of the state’s 63 incoming senators have signed on to a proposal that would impose an additional 7.5 percent tax on capital gains for married New Yorkers who are married. Their income is over $550,000. and 15 percent for couples earning more than $1.1 million.
In Maryland, Del. Julie Palakovich Carr (D-Montgomery) An additional 1% tax on top of the state income tax rate on certain capital gains. “On an internal level, people understand that working for your money does not mean passive income,” she said.
And in Hawaii, Maryland and New York, the bills will propose a measure that would hit the wealthy middle class more, not just the middle class: a reduction in the estate tax exemption. In the case of Maryland, families would owe more than $1 million in inheritance taxes instead of $5 million, as is the case today.
Del said. Jheanelle K. Wilkins (D-Montgomery), who has proposed this bill unsuccessfully before, says she hopes the idea will gain more traction because the pandemic has exposed inequality between rich and poor. “That’s a lot of money to leave on the table,” she said.