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After years of debate, discussion and indecision over income gaps, some states have proposed laws to tax the uber-rich even as President Biden calls for the same. Is America ready to cross this major threshold of taxation?

The U.S. may or may not eventually tax the wealthy – but some states aren’t waiting to see.

Wealth tax proposals have been put forward – with varying success, observers say – in California, Connecticut, Hawaii, Illinois, Maryland, New York and Washington. Other states may follow.

Legislation includes possible wealth taxes, stronger estate taxes and taxing income from realized and unrealized capital gains. Proposals run from a general tax on net assets of more than $1 billion USD to a capital gains surcharge and double-digit taxes on individuals with state taxable income exceeding $1 million. Lawmakers want to tax stocks, bonds and other assets that can appreciate in value yet currently do not trigger a tax payment until sold; New York’s proposal, for instance, could produce almost a 30% tax on the capital gain income of rich New York City residents.

In California, a state representative has claimed that a wealth tax would raise $22 billion in revenue. Washington state – home to dozens of billionaires such as Microsoft co-founder Bill Gates – could raise about $3 billion annually through a proposed 1% tax on financial assets (the first $250 million of assets would be exempt).

The arguments

Nationally, 30% of wealth ($39 trillion in 2022) is held by the 0.25% of households with total wealth over $30 million and white, non-Hispanic families hold 86% of America’s wealth. The wealthiest 1% of Americans have seen their fortunes grow 19 times faster than the bottom half of the population during the last decade, according to anti-poverty and other groups, in part because the U.S. taxes capital gains more favorably than it does income. Proponents say that taxing wealth could fund social programs, combat inequality and advance racial justice.

President Biden supports a U.S. wealth tax, which we mentioned in his recent State of the Union address, urging passage of a minimum 20% tax on households with a net worth exceeding $100 million. “Reward work, not just wealth,” Biden said. His proposals face little chance to passing, as Republicans control the U.S. House of Representatives.

Opponents say the taxes would hamper disproportionately attack investment and entrepreneurship and lead to the uber-wealthy simply leaving high-tax states – an argument similar to that often cited when discussing the decline in wealth taxes among nations in the Organisation for Economic Co-operation and Development (OECD). Proponents say no such exodus has or will take place in America in significant numbers, though the threat is always loud.

Still others maintain that wealth taxes are against American state constitutions (as in Washington); even proponents in California admit that their newest proposal has little chance of making it to state law.

Can all or part of a politically split country like the United States – one side claiming to fight for the poor and disadvantaged, the other claiming it speaks for business and entrepreneurism – ever institute something as hot-button as a wealth tax? All we know for sure is that the long debate isn’t over.

Your tax specialist needs to stay on top of this and many other issues of wealth, foreign income and tax enforcement. If we can help, please let us know.

About the Author 

Alicea Castellanos is the CEO and Founder of Global Taxes LLC. Alicea provides personalized U.S. tax advisory and compliance services to high net worth families and their advisors. Alicea has more than 17 years of experience. Prior to forming Global Taxes, Alicea founded and oversaw operations at a boutique tax firm, worked at a prestigious global law firm and CPA firm. Alicea specializes in U.S. tax planning and compliance for non-U.S. families with global wealth and asset protection structures which include non-U.S. trusts, estates and foundations that have a U.S. connection.

Alicea also specializes in foreign investment in U.S. real estate property, and other U.S. assets, pre-immigration tax planning, U.S. expatriation matters, U.S. persons in receipt of foreign gifts and inheritances, foreign accounts and assets compliance, offshore voluntary disclosures/tax amnesties, FATCA registration, and foreign companies wanting to do business in the U.S. Alicea is fluent in Spanish and has a working knowledge of Portuguese.

Alicea is an active member of the Society of Trusts & Estates Practitioners (STEP), the New York State Society of Certified Public Accountants (NYSSCPAs), the American Institute of Certified Public Accountants (AICPA), the International Fiscal Association (IFA), a member of Clarkson Hyde Global, a world-wide association of accountants, auditors, tax specialists and business advisors and the International Advisory Experts (IAE).

Distinctly, in 2020, Alicea was awarded with a prestigious NYSSCPA Forty Under 40 Award. She was selected as someone that has notable skills and is visibly making a difference in the accounting profession. Alicea has also been recognized as a leading expert for Tax advice and she has been invited to join Advisory Excellence, as their exclusively recommended tax expert in the USA.

In 2021 and 2022, Alicea was the Gold and Silver Winner, respectively, of Citywealth’s Powerwomen Awards in the category USA – Woman of the Year – Business Growth (Boutique). In 2023, she continued her winning streak by receiving the Gold award for Company of the Year Female Leadership (Boutique). Furthermore, Alicea is currently listed in the Global Elite Directory 2023, which is an annual exclusive directory of the world’s elite lawyers and outstanding wealth advisors advising ultra-high net-worth clients.

Please note: This content is intended for informational purposes only and is not a replacement for professional accounting or tax preparatory services. Consult your own accounting, tax, and legal professionals for advice related to your individual situation. Any copy or reproduction of our presentation is expressly prohibited. Any names or situations have been made up for illustrative purposes — any similarities found in real life are purely coincidental.