Wealthy Residents Consider Leaving States Amid Proposed Tax Hikes
Across the nation, some states are considering new taxes on higher earners, sparking debate about economic fairness and the potential consequences for state economies. While proponents argue these taxes will fund vital public services, critics warn they could drive away successful individuals and businesses, ultimately hurting the states they intend to help.
In Washington state, lawmakers are considering a new 9.9% tax on income exceeding $1 million per year. The state already has a tax on capital gains and a payroll tax for long-term care. Governor Bob Ferguson has expressed support for the tax, suggesting the revenue could boost funding for K-12 education. However, some worry about the overall tax burden in Washington, especially in cities like Seattle, where local wage taxes could push the top rate on wage income to over 18%. This could make Washington a less attractive place for businesses and high-income earners.
The Tax Foundation has cautioned that such high tax rates could make Washington less competitive, especially for businesses and individuals who can easily move to other states with lower taxes. They argue that piling on taxes discourages economic activity and investment.
Illinois is also grappling with proposals to raise taxes on millionaires. The Illinois Federation of Teachers is actively lobbying for a new tax, pointing to Massachusetts as an example. However, Massachusetts has struggled with residents leaving the state since implementing its own “millionaire’s tax” in 2023. Even prominent businesses, like Cape Cod Potato Chips, have left the state.
Former Illinois Governor Pat Quinn has proposed a 3% surtax on millionaires, on top of the state’s existing flat tax rate. Critics argue that Illinois already has one of the highest effective tax rates in the nation, and increasing taxes could further incentivize people and businesses to leave. The Illinois Policy Institute warns that the current high taxes are a key reason for the state’s population decline.
Another proposal in Illinois, called the “Extremely High Wealth Mark-to-Market Tax Act,” would tax the unrealized capital gains of billionaires as if they were income. This aggressive approach has been criticized as an overreach that could further damage the state’s business climate.
Americans for Tax Reform argues that Illinois’s problem is not a lack of revenue, but rather excessive spending by Democratic leaders. They believe that raising taxes will only make the state less competitive and more dependent on a shrinking tax base.
California offers another example of the potential consequences of high taxes. The state is considering a 5% wealth tax on billionaires. In response, some wealthy individuals are already planning to leave the state, moving their businesses and investments to states with more favorable tax policies.
Google co-founders Larry Page and Sergey Brin, for instance, have moved companies to Nevada and purchased properties in Florida, both states with no income tax. Venture capitalist David Sacks, a long-time California resident, has moved to Texas, calling California’s revenue grab an “asset seizure.”
These trends highlight a fundamental tension: while some believe that taxing the wealthy is a fair way to fund public services, others argue that high taxes can stifle economic growth and drive away successful individuals and businesses. The debate raises important questions about the optimal balance between taxation and economic competitiveness, and the role of government in creating a thriving economy.
