Opinion: the state wealth-tax alliance

Democrats finally have a strategy to stop billionaires from fleeing high tax states: Block the escape routes. That's the logic behind coordinated moves in progressive states to tax wealth. The reforms aren't likely to pass immediately, but they illustrate the increasingly open socialist goals of progressives and their public-union backers.

The confiscatory tax alliance emerged late last week when lawmakers from eight states unveiled plans to target wealthy residents. California, New York, Illinois, Maryland, Hawaii, Minnesota, Connecticut and Washington state are all represented, and several of the sponsors have already released bills. "We are here today to put billionaires and multimillionaires on notice," said Washington state Sen. Noel Frame on a Zoom call. "They will pay what they owe."

The taxes are branded as levies on wealth, but they vary in form. Some resemble Sen. Elizabeth Warren's outline from 2021 and would cut out a slice from large asset holdings each year regardless of whether they grew in value. That includes California, which would take 1% a year from households worth more than $50 million and 1.5% from those worth more than $1 billion. This is a grab for the fortunes of tech entrepreneurs who have already filled Sacramento's coffers with payments on income and capital gains.

The California bill would also require taxpayers with illiquid assets to file yearly reports on their holdings and eventually pay the tax, even if they move out of state. Communist China doesn't even do that. The Eagles were ahead of their time when they wrote "Hotel California": You can check out any time you like, but you can never leave.

The Illinois plan would treat billionaires' unrealized capital gains as income, taxed at 4.95%. The targets would have to pay the levy whether or not they sold the assets being taxed, though the author hasn't mentioned a comparable deduction for capital losses.

"We want to send a message that there is nowhere to hide," state Rep. Will Guzzardi told the press last week about the interstate effort. Illinois Democrats must still be fuming over the departure of hedge-fund founder Ken Griffin last year, along with his $200 million in annual state taxes.

Other wealth-tax proposals, such as New York's, are better described as mega-surtaxes. State Sen. Gustavo Rivera introduced a bill to increase the state's 10.9% top capital-gains tax rate, adding 7.5 percentage points for households earning more than $550,000 and another 7.5 points for those above $1.1 million. Including federal levies, this means politicians would take half of every dollar in investment earnings. You take all the risk, the politicians get half the gain.

The legislators say their plans will fund social spending, but they have a specific recipient in mind. The multistate launch was coordinated by Fund Our Future, an advocacy group affiliated with the American Federation of Teachers. As usual, public unions are pushing the progressive lawmakers they fund to tap new streams of tax revenue so they can get bigger salaries and pensions.

These are all awful ideas — anti-growth and ruinous for the incentive to work, invest and take risks. The taxes are also difficult to calculate since the value of nonfinancial assets may not have an active market. All of this is why Sweden, the Netherlands and several other countries in Europe that imposed wealth taxes later repealed them.

Each of the new tax schemes would speed up the flight from the states trying to impose them, and our readers might think even Albany and Sacramento can't be that dumb. But ideas that begin in the progressive fringes tend to become Democratic orthodoxy these days. For those planning ahead, real-estate agents in Texas and Florida are standing by.

An editorial from the Wall Street Journal.