States Consider Taxes on Millionaires and Billionaires to Close Budget Shortfalls
State officials are moving quickly to weigh higher levies on top earners as a frontline response to looming budget deficits. Governors, lawmakers and ballot sponsors are floating surtaxes on millionaires, a targeted 5% surcharge in Michigan for incomes above specified thresholds, and a one‑time 5% billionaire levy in California designed to produce roughly $100 billion+ if enacted. The California proposal has drawn particular scrutiny because its valuation approach would use control‑weighted measurements — a method that can assign a substantially larger taxable base to founders who hold outsized voting power in private companies, creating potential tax bills long before any liquidity event. Authors of that measure propose deferral pathways and certified appraisals to adjust valuations, but experts warn those mechanisms shift dispute risk to contested appraisals, penalties and prolonged fights with tax authorities. The plan’s retroactive framing — applying liability to residents as of a fixed date — has added urgency and prompted some wealthy individuals to accelerate domicile, property and corporate arrangements. In Massachusetts, a recent surtax has already generated more than $5 billion for schools and transit, offering an early example of revenue upside, while Michigan’s ballot language would add a 5% surcharge for high earners over specified thresholds to fund education programs. In Olympia, Democratic lawmakers circulated a draft to levy 9.9% on taxable income above $1 million, with the first taxable year scheduled for 2028 and first payments due in 2029; the Washington draft pairs the top‑end levy with offsets to protect very small firms, expanded family credits and caps on certain deductions. Opponents in multiple states — including business, venture and hospital groups — argue steep new charges could encourage relocation of owners, executives and firms, blunt equity incentives for startups and complicate hospital funding as federal supports wane. California officials note the top 1% supplies about 45% of the state’s income‑tax receipts, concentrating both revenue potential and exposure to migration. The combination of differing state moves — with some lowering marginal rates or adopting flat taxes while others increase top rates or introduce wealth levies — is accelerating a competition for wealthy taxpayers and corporate footprint. Legal exposure, contested valuation rules, administrative complexity and the likelihood of referendums and lawsuits will shape actual collections and the speed of implementation. Policymakers face a central tradeoff: targeted levies can produce meaningful near‑term revenue to shore up education and health services, but tying a large share of receipts to a small, mobile population raises longer‑term fiscal risks unless paired with durable base‑broadening reforms and rigorous enforcement design.
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