State level “millionaire taxes” have been proposed – and adopted – around the country, including in Massachusetts, Minnesota, and Washington state. Critics fear these taxes will lead to “millionaire flight” and pose administrative challenges, but advocates say such taxes are key in funding public services.
Wealth Taxes Unpacked
While often grouped together, recent state-level proposals targeting the wealthy have taken several different forms. Panelists at an October 28 panel hosted by Fair Share America delved into the details.
High-earner surtaxes. Some of these so-called millionaire taxes are income surtaxes that add a percentage to the tax rate on annual income above a certain threshold. For example, in 2022, Massachusetts voters approved a 4% surtax on annual income over $1 million. Revenue from this Massachusetts tax supports public education and transportation.
The State Revenue Alliance’s Jeron Mariani said during the panel that “99% of residents” don’t pay any additional tax, but “all benefit from greater investments in public education, roads, bridges, public transportation.” According to Fair Share Massachusetts, the tax has been an “unqualified success,” raising nearly $3 billion in its second full year.
Panelists also noted an ongoing ballot initiative in Michigan, Invest in MI Kids, that would add a similar surtax for high earners. The proposal would amend the state constitution to add a 5% surtax on annual taxable income over $500,000 for single filers and $1 million for joint filers. Revenue would be used exclusively for K-12 education.
Wealth proceeds taxes. Another approach is a tax on profits generated by certain wealth holdings, such as the one adopted by Minnesota in 2023. Under the Minnesota tax, beginning in tax year 2024, individuals, estates, and trusts must pay a 1% tax on their net investment income exceeding $1 million. The state defines net investment income to include interest, dividends, capital gains, and rental and royalty income.
The Institute on Taxation and Economic Policy, in a recent report, described the tax as “piggybacking” on the federal net investment income tax. For this reason, ITEP contends the tax is “simple to implement” and does not “require a large amount of administrative effort by taxpayers or state tax departments.”
Capital gains taxes. Washington state, which has no personal income tax, has taken a different approach, said state Senator Noel Frame. In 2021, the state passed a 7% tax on capital gains over $250,000, which has since survived legal challenges to repeal it, Frame explained during the panel. The tax raised over $1.2 billion, which has been used to expand public investment in education, according to the Institute for Policy Studies and State Revenue Alliance.
Building on the success of the capital gains tax, some lawmakers in Washington state are trying to go farther, said Frame. A recent Democratic budget proposal included a “financial intangibles tax” that Frame said would expand the property tax to cover assets like stocks, bonds, exchange-traded funds, and mutual funds. The Senate-passed version of the bill would have raised an estimated $1.5 billion a year, she added.
Wealth Tax Critiques
Regardless of the specific approach, state wealth taxes have faced criticisms. One “common refrain,” said Mariani, is “millionaire flight.” He described this as the “myth” that if states implement wealth taxes, “millionaires and corporations are going to flee your state by the boatload.” For example, the Tax Foundation’s Andrey Yushkov argues that such taxes may lead to “out-migration” and “undercut economic progress.”
However, advocates say the data does not support the millionaire flight claim. The Center on Budget and Policy Priorities found that state tax levels “have little effect on whether and where people move.” Similarly, the Institute for Policy Studies and the State Revenue Alliance determined that “[t]he number of wealthy individuals and their cumulative wealth grew” in Massachusetts and Washington after the wealth taxes were enacted. Mariani offered the explanation that high-wealth individuals “choose where they live based on their family background, their communities, their jobs, their connections.”
Another common argument is that wealth taxes hurt local business owners. Opponents “want to frame all of these new taxes as taxes on local business owners, and nothing could be further from the truth,” said Mariani. He explained that he had worked with a hundred business owners in championing the Massachusetts tax. Those business owners aren’t “clearing a million dollars a year in personal take home income” after reinvesting in their businesses and paying staff, taxes, and other expenses, he added. And they not only don’t pay the tax, they benefit from education and transportation investments the tax proceeds go toward, Mariani said.
Opponents also raise practical challenges to wealth taxes. Wealth is often held in illiquid assets, such as real estate or private businesses, making it difficult to pay a tax without forcing a sale, say some critics.
Robert Mancuso of Capri Capital Partners also has concerns about valuation. “Until [an asset] is sold, its value could rise and fall, depending upon many factors,” he explained. To him, the “value” of an asset is “theoretical until it is disposed.” What’s more, said Mancuso, “a tax on assets based on the difference between their value on December 31, 2025, and their value on December 31, 2024, could be the result of inflation,” which he described as an “illusory increase in wealth.”
A 2022 Congressional Research Service report also points out that valuing certain assets will pose a challenge. “For items such as fine art, wine, antique cars, jewelry, and other collectables, there is often not a liquid market that can be referenced for valuation purposes,” says the CRS. It also cautions of the difficulties in valuing intangible assets, like patents and copyrights.
Proponents, however, argue that these challenges are surmountable. Frame drew a parallel to how middle-class wealth is already taxed. With the Washington state proposal, “we’re going to tax financial assets with the property tax, just like we do the wealth of middle-class people, which is their homes,” she explained.
“It’s not rocket science,” Frame said. “It is just updating the Tax Code to reflect a modern economy.”
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