Tax the rich? Liberals renew push for state wealth tax

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Proponents of taxes on the very rich say people are emerging from the COVID-19 pandemic with a greater appetite for what they call “tax justice.”

Bills announced on Thursday in California, New York, Illinois, Hawaii, Maryland, Minnesota, Washington and Connecticut vary in their approaches to raising taxes, but all revolve around the idea that richer Americans need to pay more.

All proposals face questionable prospects. Similar legislation has died in state legislatures and Congress. But the new momentum shows that the political left is not ready to give up the populist argument that government can and should be used as a tool to redistribute wealth.

“Under the pandemic, as people struggled to put food on the table, we saw billionaires double their wealth,” said Democrat Alex Lee, Member of the California Assembly.

The Tax Foundation, a conservative political organization, has called wealth taxes – which levy taxes not just on new income but on a person’s total assets – “economically destructive”.

He also said in a statement that such taxes create “perverse incentives” for the rich to avoid taxes, including simply moving to states with a lower tax burden.

“Few taxpayers would pay wealth taxes – but many more would pay the price,” the group said in a statement. Progressive Democrats, however, argue that they are not seeing wealthy taxpayers leaving their states due to higher taxes.

California already taxes the rich more than most states. The richest 1% account for about half of the state’s income tax collection. But this week Lee proposed a “wealth tax” similar to the one promoted for years by US Senator Elizabeth Warren, Democrat of Massachusetts.

It would impose an annual tax of 1.5% on assets over $1 billion and 1% on assets of $50 million or more. The new tax on wealth, not annual income, would affect about 23,000 “ultramillionaire” families and 160 billionaires, or the richest 0.1% of California families, Lee said.

In Connecticut, progressive lawmakers are proposing more traditional increases: a higher capital gains tax rate for wealthy taxpayers and higher personal income tax rates for millionaires,

“We need to make sure that the wealthiest in our state actually pay what they owe and not expect working families across the state to continue to subsidize their share,” said State Representative Kate Farrar, deputy majority leader in the controlled House of Representatives. by the Democrats. Representatives.

One obstacle to such proposals is that some states where the idea might be popular are currently running budget surpluses, meaning there is little pressure to raise revenue.

Connecticut is expected to end its fiscal year with a $3 billion surplus. Hawaii is projecting a budget surplus of $1.9 billion in the new legislative session.

But Hawaii State Representative Jeanne Kapela, a Democrat, said a proposal there to raise the state’s capital gains tax is more about economic equity than raising money.

“If you look at our tax code now, it really is the definition of economic inequality,” Kapela said.

Lower-wage workers in many states typically see a much larger percentage of their income go to taxes each year than the very rich, particularly in states that do not have a graduated income tax.

Massachusetts voters, who had a flat income tax, passed an amendment to the state constitution in November, which sets a higher rate for those earning more than $1 million a year.

Despite optimism expressed by liberal lawmakers that 2023 could be the year, many of these proposals face an uphill battle, even in blue states with Democratic governors.

“This ‘tax on the rich’ was there before and it’s here again. And, frankly, it never gained traction before and I seriously doubt there’s an appetite for it now,” said Gary Rose, professor of political science at Sacred Heart University in Fairfield, Connecticut.

Many people, he said, don’t resent the rich as much as they do some progressive Democrats.

“I think if you do a poll of the American people, a lot of people want to get rich and that’s part of, shall we say, the American dream,” said Rose. “We have never had a tremendous appetite in this country to tax the rich because getting rich… is really part of who we are and what separates this country from many democratic socialist countries.”

A California wealth tax bill never had a public hearing last year. Governor Gavin Newsom, a Democrat who was just elected to a second term in a landslide, has actively campaigned against efforts to raise taxes on the wealthy.

His opposition helped scuttle a 2022 election initiative that would raise taxes on the rich to pay for electric vehicle charging stations and forest fire prevention.

In Connecticut, Democratic Governor Ned Lamont, a multimillionaire, says he wants to focus his second term on lowering taxes rather than raising them.

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Associated Press writer Audrey McAvoy in Honolulu, Hawaii and Adam Beam in Sacramento, California contributed to this report.

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