“In 2025, States Will Flip the Script on Taxes to Make the Wealthy Pay Their Fair Share”

Yves here. While the intent of the State Revenue Alliance, to increase state taxes on the very rich, is estimable, the post below suggests that despite putting a lot of effort into this campaign, and even getting some new legislation, they don’t appear to have a sufficiently strong grasp on the enforcement and legal, including Constitutional, issues that can and will throw very big monkey wrenches into their initiatives.

Mind you, there are some ways of taxing the rich more that would not be difficult to implement, such as a surtax on capital gains or a state property tax surcharge on high value real estate (note this would not fly in California due to Proposition 13, which limits property taxes). So the general idea does have merit and can extract some more goodies from the well off. And perhaps because this piece was for Common Dreams, it took a cheerleading approach.

However, the part that gave me pause was the enthusiasm for wealth taxes. The article below suggests that they are the top target: “Those bills included wealth taxes; corporate tax reform; reinstatement or creation of capital gains taxes; repealing certain tax breaks, which too often allowed the wealthiest to shield their assets…”

Many countries that had wealth taxes have ended them, due to difficulties with measurement and enforcement. And an annual wealth tax, even if it can be made to work, is inefficient compared to estate taxes, which hit the same wealth at a transfer point (to heirs and charities) and is much cheaper to implement due to being assessed less often. Rates can be set higher to compensate for the lower frequency of imposition.

Why are wealth taxes very difficult to administer? Unless the super rich person owns mainly market traded securities, it is very difficult to determine what their holdings are worth. For instance, when different private equity funds hold a stake in the very same private company, they often give different, and not infrequently VERY different, valuations to fund investors (x to 3x is not unheard of). Keep in mind the IRS has lost literally every suit over large estate valuation since Estate of Newhouse v. Commissioner in 1990. Think states will fare any better in these pigfights than the IRS?

That’s before the wee problem of even locating and identifying assets if the taxman thinks the rich person is not being forthcoming. And what about crypto? Wellie, that is in the process of being nailed down by the IRS. From KPMG:

The IRS has expanded reporting requirements for digital assets, ushering in a new era in cryptocurrency taxation. For a sense of the scale, by 2027 the IRS expects eight billion Forms 1099-DA to be filed annually—more than all other Forms 1099 put together.

The rules introduce a phased approach, beginning with gross proceeds reporting in 2025 (filed in 2026), followed by cost basis reporting for assets acquired on or after January 1, 2026. Taken together, they may require substantial adjustments in reporting practices and systems for many businesses now dealing with crypto transactions.

Now of course, this does not stop crypto holders from storing their digital assets only locally and transacting only with counterparties outside the reporting sphere…which substantially limits who one can trade with. It is beyond the scope of this post, but the OECD is in the process of implementing a Crypto Asset Reporting Framework for OECD members to share data about crypto transacations. This initiative appears to be pretty far along. An early October release provided the IT format for providing data as well as interpretative guidance. So crypto is soon to become much less viable as a tax avoidance scheme than it now is.

But back to the main event, state taxation of the very rich. A failed exit tax bill in California, AB 259, gives an idea of the obstacles (mind you, this is all assuming it had become law). It would have taxed worldwide net worth of rich Californians for four years after the left the state, 1.5% each year for amounts over $1 billion initially, with a lower tier of 1% tax for net worths of $50 million to $1 billion added in 2026.

California does have a big enough tax bureaucracy so as not to make an idea like this crazy on its face, and the bill also allotted a lot of funding to hiring or contracting with valuation experts. But putting aside the fact that the IRS has lost every contested estate valuation case for 30+ years, any state wealth or merely specific group-targeting tax raises US Constitutional issues, including:

The commerce clause. In crude layperson terms, states can’t interfere with interstate commerce. Without getting into many hypothetical cases, a tax on the personal wealth of a resident billionaire who held interests in private businesses that crossed state lines (and most would) could be challenged for incorrect apportionment for California activity under the bill. Moving the business would be interstate migration of capital that the commerce clause says cannot be taxed without apportionment for California activity.

The privilege and immunities clause, Article IV, section 2: “The Citizens of each State shall be entitled to all Privileges and Immunities of Citizens in the several States.” Citizens of other states should have free entry and exit, and the right to do business in state without more onerous taxation than residents. This means in practice if a state discriminates against the residents of another state, it must have compelling reasons to do so. That won’t apply to taxation of resident’s wealth, but has the potential to implicate certain types of cross border activities, as well as arguably unduly punitive discriminatory treatment of ex residents. For instance, New York tried to bar nonresident taxpayers from deducting alimony payments from taxes The Supreme Court invalidated the New York rule.

Equal protection. This might seem like a strain, but tax experts argued it could be an impediment to AB 259, and it could also be to other less-than-carefully-thought-out state wealth tax schemes. In crude terms, the state must have a legitimate purpose behind tax classifications and they must not be applied in an economically discriminatory manner (broadly similarly situated parties must achieve broadly similar results). It’s a comparatively penny ante matter, but New York City had its commuter tax overturned, and equal protection was one of the reasons.

So perhaps these advocates do have a finely honed idea of the tax, as well as political, hurdles they face. It would be nice for them to show that in their public relations product.

By Amber Wallin, the executive director of the State Revenue Alliance and their affiliate, the Alliance Action Fund, national nonprofit organizations that support tax justice campaigns and revenue policy advocacy in the states; she has over a decade of experience focused on tax and budget, economic justice, education, and health policy issues. Originally published at Common Dreams

After every big election, there’s a spotlight on the candidates that came out on top: Who’s in and who’s out, talk about mandates, seat margins, and the First 100 days.

There’s plenty of policy previews about next year.

But one issue will have a starring role both in Washington, D.C. and in states across the country—taxes.

We know Republicans in Washington are writing a play to extend and even expand President-elect Donald Trump’s 2017 tax cuts. And nearly every state will have to adapt to additional fiscal pressures while also finding ways to pay for the things our families and communities need.

Past sessions foreshadow how anti-tax elected officials around the country will act on behalf of their donors: Each time Republicans have held a trifecta in Washington this century, they’ve demanded tax cuts for the rich. During Covid-19, 26 states cut taxes, often targeting top earners, which will cost $124 billion by 2028.

We’ve seen this show before and it stinks.

The plot is tired, unbelievable, and relegates voters to a bit part, when it’s our communities that should be the lead. How many times do we have to listen to the same trickle-down economic nonsense? It’s getting old.

Polling shows that voters would rather politicians play it straight and raise revenue from big business and the wealthy rather than feel the squeeze as tax cuts lead to budget cuts to the programs and services our kids and communities need most.

Flipping the script on tax cuts for the wealthy is a core reason the State Revenue Alliance was created. Voters feel the economy isn’t working for them and want corporations and billionaire CEOs to pay their fair share. Ultimately in 2025, it’s the people who’ve too often been shut out of policy debates who will fight for tax justice and change the trajectory of tax policy in this country.

Knowing that 2025 would see a confluence of tax fights at the state and federal level, state-based advocates have spent years building coalitions of pro-revenue champions committed to working together and will have the resources to fight for good schools, housing affordability, and accessible healthcare in legislatures around the country.

Together, we’ve made real, tangible, and, yes, sustainable progress in our collective efforts to win pro-revenue policies. In 2024 alone, state-based grassroots organizations, labor groups, policy shops, and legislators supported 35 tax justice bills in state capitols. Six of those bills passed and were signed into law. Those bills included wealth taxes; corporate tax reform; reinstatement or creation of capital gains taxes; repealing certain tax breaks, which too often allowed the wealthiest to shield their assets; and more.

In anticipation of this year, we are already tracking nearly 50 tax justice bills filed in state capitols. When legislative sessions open early next year, our allies will be ready, putting forth a compelling case for ensuring the wealthiest and big corporations pay their fair share at the state level so everyone has a fair shot to survive and thrive.

Rather than divide us, taxes will be an issue that unites community voices across the country in 2025. In addition to our focus on tax justice in states, we will join hundreds of national organizations to demand Congress forgo any additional tax cuts for the wealthy and advocate for new revenue.

An extension of the 2017 Tax Cuts and Jobs Act (TCJA) will further reward the wealthiest individuals and big corporations with myriad tax breaks and benefits. We know it will come at the expense of working and middle-class families, costing us an estimated $4.6 trillion over the next 10 years. Extending the TCJA also puts additional strains on states and localities to make up potential funding gaps, as they rely on federal dollars for everything from schools to healthcare, critical infrastructure, and more.

We know the vast majority of Americans want the rich to pay more, not less, in taxes—at both the state and federal level. It’s time for elected officials to give the people what they want after years of disappointing performances.

As storylines develop following the 2024 election, progressives should consider the action in the states around taxes—who pays what they owe, who benefits from them, and whether or not they raise the revenue to fully fund our futures—as the biggest and most unifying fight on the horizon.

If we are successful, 2025 will reveal a more just, equitable, and sustainable tax code that helps build the future our communities deserve.