Across seven states on Thursday, lawmakers will be introducing bills aimed at taxing the wealth of the richest Americans as Congress has repeatedly failed to raise taxes on the rich or target wealthy tax-dodgers.
The bills will be introduced in states with a higher concentration of wealthy people, like California and New York. While the bills vary in their language — several of them are inspired by a proposal from Sen. Elizabeth Warren (D-Massachusetts) and some are drafted in part by progressive economist Emmanual Saez — they are all aimed at taxing the wealth rather than the incomes of the richest Americans.
This method hasn’t been tried in the U.S., and is a common demand of progressives and leftists in the modern era of extreme wealth concentration at the very top.
The lawmakers — in California, Connecticut, Hawaii, Illinois, Maryland, New York and Washington — say the bills are necessary to tackle wealth inequality.
“The point here is to make sure we do at the state level what is not being done at the federal level,” New York state Sen. Gustavo Rivera (D) told The Washington Post.
The proposals, if passed, could serve as proof of concept for a potential federal wealth tax in the future, the lawmakers say. And even if the bills don’t pass — previous attempts to pass similar proposals have not passed through state legislatures — they could help shift the way extreme wealth is perceived in relation to society.
“States are the labs of innovation,” Washington state Sen. Noel Frame (D) said to The Washington Post. “But taxes are different. This is why we are all here together.”
Many of the proposals will target capital gains, or profits made from assets like stocks, which account for a large proportion of the wealth owned by the U.S.’s wealthiest households.
In California, Illinois, New York and Washington, lawmakers are planning to introduce bills that would tax unrealized capital gains. Profits from things like stocks are currently only taxed when they are sold, and they are sold at a lower tax rate, of 20 percent, than the top marginal tax rates, allowing the rich to accumulate wealth and pay less in taxes than they would if they were paid the same amount in income.
And that’s if they pay the taxes for selling the stocks at all — wealthy people are increasingly using a method known as “buy, borrow, die” to avoid selling stocks and facing a hefty tax bill. This practice allows the wealthy to borrow loans against their stock portfolios, enabling them to access money squirreled away in their portfolios without the tax obligations. Unrealized capital gains taxes could help prevent the wealthy from using this practice to hoard money and withhold it from the government.
Lawmakers in Connecticut, Hawaii, Maryland and New York will also raise the tax on capital gains for the wealthy, implementing rates similar to the highest marginal tax rates they would otherwise pay on their incomes. In three of those states, lawmakers will target inheritances and dynastic wealth by lowering the exemption cutoff for estate taxes, which is currently high at the federal level thanks to Republicans’s 2017 tax overhaul.
Warren lauded the lawmakers’ efforts in a tweet on Wednesday. “The majority of Americans agree: it’s time for a wealth tax on the ultra-rich in America,” she wrote. “States are stepping up to make billionaires pay their fair share, and it’s time for Congress to take action too.”
These bills are being introduced at a time of extreme wealth inequality. An Oxfam report released this week found that the top 1 percent of richest people on Earth have captured twice the wealth the rest of the world gained over the past two years, compounding on wealth inequality that has been worsening for decades. Meanwhile, another report this week by progressive groups found that a modest global progressive wealth tax could have raised $1.7 trillion in 2022 alone.