Another State Pushes Dems’ Radical New Wealth Tax

Lawmakers in Vermont are taking steps to introduce new tax measures aimed at the state’s wealthiest residents. This move aligns with a national campaign by Democrats who believe these measures will gain traction as states grapple with post-pandemic budget constraints.

One proposed tax would target individuals with a net worth exceeding $10 million and tax their unrealized capital gains. Another measure would introduce a 3 percent marginal tax on incomes above $500,000 per year, potentially generating $98 million in revenue for the state.

State Representative Emilie Kornheiser, who chairs the Ways and Means Committee, sponsors both bills, highlighting their significance to the Democratic leaders who control the legislature. Kornheiser argues that the current tax structure burdens the middle class unfairly and aims to ensure that all Vermont residents pay their fair share.

The Tax Justice Initiative, aimed at tackling income disparity via tax reforms, encompasses these bills. This movement picked up pace last year after lawmakers in seven states, such as California, New York, and Washington, put forward legislation akin to the federal wealth tax suggested by Senator Elizabeth Warren in her 2020 presidential run. Although these bills did not progress past committee stages, there is optimism among organizers that with new support from Vermont, Pennsylvania, and possibly more states this year, these initiatives will make greater headway and generate significant political momentum.

Resistance to expanding state taxation beyond income to include assets has come from Republicans and Democrats. Even with California’s progressive income tax system, Governor Gavin Newsom rejected a wealth tax to address the state’s budget deficit. Some argue that high earners in California already face significant demands from the existing tax system. In Texas, voters passed a constitutional amendment prohibiting preemptively future wealth or net worth taxes.

Despite facing challenges, the notion that the wealthiest individuals are not paying their fair share resonates with many Americans. A Pew Research poll conducted in April 2023 found that 82 percent of respondents were bothered by this perception, with 60 percent stating that it bothered them “a lot.” More than 250 millionaires and billionaires, including heirs to the Rockefeller and Disney fortunes, signed an open letter urging world leaders to tax them more.

Research from the Institute on Taxation and Economic Policy reveals that the overall tax systems in most states and localities are regressive, with the poorest taxpayers paying higher effective tax rates than the top 1 percent of households. This tax increase has prompted lawmakers in 10 states, including Vermont, to introduce or work on introducing wealth tax bills in 2024.