State-Level Wealth Tax Proposals Are Gaining Momentum Even as Federal Action Remains Unlikely
MARKET INSIDER – The United States is unlikely to introduce a federal wealth tax anytime soon, but that does not mean America’s wealthiest households are out of the spotlight. As Washington remains politically divided, several US states are increasingly exploring new ways to tax extreme wealth, raising fresh questions for billionaires, investors, family offices, and businesses with multi-state operations.
The debate extends far beyond domestic politics. If more states adopt taxes targeting net worth, unrealized gains, or financial assets, the implications could reshape investment decisions, capital flows, and tax residency strategies—not only across the United States but also for international investors with exposure to US markets.
Although the concept of taxing wealth is not entirely new, the latest proposals represent a significant departure from traditional property taxation. Americans already pay taxes on assets such as real estate, vehicles, and business equipment through annual property taxes. The newer proposals, however, seek to tax an individual’s overall net worth or specific financial assets, regardless of whether those assets generate income or have been sold.
California has become the focal point of the national debate. A proposed ballot initiative would impose a one-time 5% tax on California residents whose net worth exceeds $1 billion as of December 31, 2026, with a gradual phase-in for fortunes between $1 billion and $1.1 billion. Under the proposal, an individual with a net worth of $1.1 billion could face a tax bill of approximately $55 million. The initiative also includes provisions designed to discourage wealthy residents from relocating solely to avoid the tax, potentially triggering legal challenges over former residents’ continuing tax obligations.
Other states are pursuing different approaches. Maine has already enacted a so-called “millionaire tax,” raising its top personal income tax rate from 7.15% to 9.15% for individuals earning more than $1 million annually. Hawaii and Rhode Island have introduced similar higher tax brackets for top earners. Meanwhile, lawmakers in Washington state considered taxes on financial assets—including stocks, bonds, mutual funds, and exchange-traded funds (ETFs)—with proposed rates ranging from 0.5% to 0.8% for taxpayers above certain wealth thresholds. Although those proposals were not adopted, Washington instead approved a 9.9% tax on adjusted gross income above $1 million, scheduled to take effect in 2028, marking a historic shift for a state that traditionally did not levy personal income tax beyond its capital gains tax introduced in 2022. Illinois also examined a tax on billionaires’ unrealized capital gains in 2025 but ultimately declined to move forward.
These proposals reflect mounting fiscal pressure on state governments seeking new revenue sources to fund healthcare, education, and public services. At the same time, they have intensified concerns over taxpayer migration, with some wealthy individuals considering relocation to lower-tax states. Tax advisers increasingly warn that moving may not eliminate future liabilities, particularly where legislation includes anti-avoidance provisions similar to California’s proposal.
The constitutional debate remains equally significant. Under the original US Constitution, direct taxes generally had to be apportioned among the states according to population. That restriction prevented the federal government from imposing a permanent income tax until the ratification of the Sixteenth Amendment in 1913, following the US Supreme Court’s controversial decision in Pollock v. Farmers’ Loan & Trust Co. Whether a federal wealth tax—or taxes on unrealized gains—would satisfy constitutional requirements remains highly contested and would almost certainly face immediate legal challenges if enacted.
For now, few analysts expect Congress to seriously pursue a federal wealth tax over the next two and a half years. The greater momentum lies at the state level, where lawmakers possess broader authority to experiment with new tax structures despite the likelihood of litigation. For global investors, the debate is becoming less about whether the United States will impose a nationwide wealth tax and more about whether a growing patchwork of state-level tax regimes will influence where capital—and wealthy taxpayers—choose to reside. As governments worldwide search for new sources of revenue amid rising fiscal pressures, America’s state-led tax experiments could become an influential model—or a cautionary tale—for policymakers across the globe.
