Across the nation, several states with Democratic leadership are considering tax increases targeting millionaires, a move some observers characterize as potentially damaging to their economies.
State Tax Proposals and Economic Concerns
The push for higher taxes on high earners is occurring in states including New York, California, Washington, Illinois, and Massachusetts. These measures are being proposed despite warnings that wealthy residents may relocate in response to increased tax burdens, taking jobs, revenue, and even congressional representation with them.
In Washington state, a slim Democratic majority is on the verge of passing a 9.9% income tax on millionaires, despite the state’s constitutional prohibition. The Tax Foundation ranks Washington state 45th out of 50 in tax friendliness. Starbucks, a Seattle-based company, is already moving corporate management to income tax-free Tennessee.
Similar proposals are underway in Illinois, where teachers’ unions are advocating for a 3% surcharge on million-dollar earners, and in Massachusetts, where a 4% surtax on millionaires has been in place since 2022. Although, Massachusetts is currently struggling with a significant net population drop, with over 182,000 residents leaving the state in the last five years, including a disproportionate number of young adults.
Even established businesses, like Cape Cod Potato Chips, have left Massachusetts, shutting down their last plant in the state. Connecticut is also considering increasing its top personal income tax rate. New York City Mayor Zohran Mamdani has stated his belief that “I don’t suppose we should have billionaires.”
Conversely, states like Oklahoma, South Carolina, and Kentucky are phasing out income taxes to attract businesses, and residents. The President’s Council of Economic Advisors estimates that phasing out Illinois’ income tax could produce a $5,500 wage hike for the average worker and increase business startups by as much as 26%.
Frequently Asked Questions
What is happening in Washington state?
A slim Democratic majority in Washington state is on the verge of passing a 9.9% income tax on millionaires, despite the state constitution prohibiting an income tax.
What is the situation in Massachusetts?
Since passing a 4% surtax on millionaires in 2022, Massachusetts is struggling with a significant net population drop, with over 182,000 residents leaving the state in the last five years.
What is the stated goal of these tax increases?
Proponents of these tax increases claim they are intended to redress inequity and fund social services, though critics argue they are rooted in an ideological revulsion at the rich.
Will these policies ultimately foster economic growth or lead to further decline?
