Several US states are exploring new ways to raise revenue, including wealth taxes or related measures that target high‑net‑worth residents. While these proposals have attracted significant attention, history suggests that true wealth taxes face substantial legal, administrative, and economic challenges, and often fail to generate the stable revenues projected by supporters. More modest alternatives — such as higher taxes on high incomes or capital gains — are generally easier to implement and more likely to advance.

Where Wealth Taxes Are Being Discussed

California
California has received the most attention for a proposed one‑time wealth tax on billionaires. Most independent research notes that the proposal faces significant hurdles, including potential conflicts with the California Constitution, and questions as to whether the revenue would be viewed as credit‑positive by rating agencies. The concern is that a one‑time levy could trade durable future income tax revenue for a short‑term payment.

New York
New York is frequently cited among the high‑tax states considering wealth tax concepts. The state already ranks among the most burdensome tax environments, raising questions about competitiveness and taxpayer response. However, no clearly defined wealth tax structure has yet emerged.

Broader Momentum (not pure wealth taxes)

Recent reporting shows states such as Washington and Illinois pushing new or expanded taxes on high earners, often described alongside broader “wealth levy” discussions. These are generally income‑based measures, not net‑worth taxes, and are typically more feasible politically and legally than true wealth taxes.

Likelihood of Adoption

• California (billionaire wealth tax): Low probability. Significant constitutional and design challenges reduce the likelihood of successful passage and durable implementation.
• New York (wealth tax concepts): Low to moderate probability, reflecting political interest but limited clarity on structure and feasibility.
• Millionaire or high‑income surtaxes (various states): Moderate probability, as these build on existing income tax systems and avoid many valuation and enforcement issues.

Why Wealth Taxes Often Underperform Revenue Expectations

• Legal uncertainty
  Wealth taxes are more vulnerable to constitutional and legal challenges than income taxes, which can delay, reduce, or eliminate expected revenue. This risk is highlighted in an analysis of California’s proposal.
• Valuation and administration challenges
  A wealth tax requires regular valuation of illiquid assets such as private businesses, real estate partnerships, and closely held investments. These valuations are costly, subjective, and frequently disputed, reducing net collections and increasing volatility.
• Behavioral responses
  High‑net‑worth households are often more mobile and financially flexible. Changes in residency, asset location, or ownership structure can significantly shrink the tax base over time, particularly in states where taxes are already high.
• Poor revenue quality
  One‑time or narrowly targeted wealth taxes may generate short‑term receipts but do not create a stable, recurring revenue stream. This limits their usefulness for long‑term fiscal planning.

Planning Considerations for Affected Clients

• Residency and domicile review: State tax exposure often depends on residency definitions. Clear documentation and consistency matter.
• Liquidity planning: Wealth taxes can create cash‑flow needs even when assets are illiquid; advance planning can reduce forced sales.
• Estate and charitable planning: Gifting and charitable strategies, when aligned with personal goals and current law, may affect taxable exposure.
• Ongoing review: As proposals evolve, periodic review with qualified tax and legal advisors is essential.