It’s an old aphorism that if you tax something, you get less of it. Seven states are at risk of finding out exactly how that truism applies to wealth tax legislation introduced in each of them should their proposed taxes become law.
In other words, wealthier taxpayers in these states have already begun to recognize that their representatives view them only as cash cows to be squeezed for all they’re worth and are fleeing to greener pastures. While loading up taxes on wealth, investment, and entrepreneurship is foolish at the federal level for policy reasons, at the state level it’s ill-advised for all those reasons, as well as the fact that overtaxed residents can simply up and leave.
States responding to this trend with yet more taxes are only proving their taxpayers’ fears true. Relying more and more on a small tax base of wealthy individuals eyeing their upcoming move to Florida or Texas isn’t a recipe for fiscal success at the state level.
But as this latest round of tax hike proposals shows, high-tax states are likely only to double down. For some time, states have been ramping up efforts to tax nonresidents as a way to get around persistent trends of outward tax migration.
These issues may often appear to be purely esoteric, jurisdictional disputes, but at their core, they represent the response effort by states seeing their tax bases flee to other states to force taxpayers into their jurisdiction. The goal is to limit taxpayer agency in something that’s fundamental to the American federalist system—the ability to choose which state to live in and be taxed by.
Should high-tax states succeed in their efforts to spread the reach of their tax jurisdictions, they may be able to bypass the revenue consequences of ever-increasing tax obligations. Should that happen, the proposals in these seven states are just a taste of what taxpayers can expect.