More States Want to Tax the Rich. Here's How.

0:00Alex Ossola:I'm Steve Booth, CEO of Baird, an independent wealth, asset management, and global capital markets firm. At Baird, our 5 ,000-plus employees are united by an unwavering commitment to excellence and a genuine passion for helping our clients and each other succeed. As a privately held, truly employee-owned company, we treasure our independence since we can focus on delivering results to clients and taking care of our people throughout the cycles in our serve markets. Learn more at rwbaird.com slash wsj. Hey, What's News listeners, it's Sunday, July 12th. I'm Alex Oseleff for The Wall Street Journal.

0:37Alex Ossola:This is What's News Sunday, the show where we tackle the big questions about the biggest stories in the news. On the show this week, we're looking at efforts around the U.S. to increase taxes on the wealthy.

0:50Alex Ossola:There's a proposal in California to tax the state's billionaires, and the effort recently cleared a key hurdle, so it'll appear on the ballot in November. That's no guarantee it'll become law, but it's good news for the health care workers union that proposed it. In fact, they say it's necessary. This is a one-time emergency tax to address the collapse of our health care system in California and the loss of health care coverage for three and a half million people. That was Dave Regan, the president of the Service Employees International Union United Health Care Workers West, speaking recently on KCRA News.

1:24Alex Ossola:But there are also lots of people who oppose the billionaire tax, even among people who support higher taxes in general. Billionaire venture capitalist Vinod Khosla recently discussed it in an interview with journal reporter Gunjan Banerjee. And though Khosla says he's in favor of higher taxes to support labor, he doesn't think this tax is the way to do it. I'd be happy to pay more taxes and have capital gains, which is mostly what I pay, be the same as ordinary income. But you have opposed the wealth tax on the table right now. That's a dumb idea. Not every tax is a good idea. It solves nothing.

1:59Alex Ossola:The California tax is one of a growing number of state efforts around the country to impose new taxes on America's wealthiest residents. I spoke about where those efforts stand and what they tell us about what could happen with California's billionaire tax with WSJ economics reporter Jean Whalen and Laura Nelson, journal enterprise reporter based in Los Angeles.

2:21Alex Ossola:Laura, let's start with this California billionaire tax. What is the idea behind this and how would it actually work? So it is a first-of-its-kind proposal in the U.S. Typically in America, we tax assets when they're sold. If you buy a stock and then sell it a couple of years later, you pay taxes on the gains that you make at the time of sale. But when you hold it, you typically don't have to pay much, if anything. This tax in California would impose a one-time 5 % tax on the assets of individuals who have a net worth of at least a billion dollars. So that means for someone worth$10 billion, the tax would amount to a one-time bill of about$500 million.

3:01dollars. The health care union that's backing this tax has said that this revenue is vital because of cuts that have been made to Medicaid that were passed through Congress and signed into law last year by President Trump. And the union that's backing this tax estimates that California could lose about$100 billion in funding for Medi-Cal, which is the state's Medicaid program, and that this revenue is the only thing that they could think of to backfill cuts of that size.

3:29Alex Ossola:But this is, as you said, a one-time tax. So what happens after that? The idea with the health care union is that this would buy them a little bit of breathing room to figure out how to fund these programs over the long term. And of course, during that time period, they are thinking there could be a change in which party controls Congress. If Democrats take control of the House or the Senate or both chambers or the presidency in 2028, there could be real changes to the way that the country approaches healthcare spending and funding from a federal level as opposed to at a state level. So this is kind of a stopgap.

4:02Alex Ossola:And where does the effort stand right now? The measure has qualified for the ballot. That means that California voters in November will have the chance to say yes or no to it, up or down. There's also two other measures that have qualified for the ballot as well that have been funded by a handful of people, including Google co-founder Sergey Brin. And those measures take aim at portions of the wealth tax. But we are headed into a very busy ballot measure season where there will be multiple billionaire tax-related efforts all on the ballot at the same time for voters in November. Wow. Okay. That's messy.

4:38Alex Ossola:We're going to talk about pushback a little bit later. But Gina, I want to go over to you. So California is considering a wealth tax, as we've just heard, but other states are considering or have implemented income taxes on the wealthy. What is the difference there? So the California tax, as Laura explained, is what people who follow these things closely call a wealth tax, and that is a tax on people's assets. Most other states that are interested in this are either enacting or considering new taxes on wealthy people's income as opposed to their assets. States such as Maine, Washington, Massachusetts have actually enacted these new income taxes on income over$1 million a year.

5:23There have been discussions among Democrats and progressive groups in other states, such as Rhode Island and Colorado, about trying to push for these new income tax levies. So that is the more common approach throughout the U.S. these days in blue states. The opponents of it would say it's dangerous because what's to stop the state down the road from expanding this higher income tax rate to income under a million dollars and hitting more taxpayers? But the idea here is there are more people these days earning more than a million dollars a year. We need more money in our states to pay for health care and food assistance, particularly in the wake of the federal cuts to those programs that were part of the Republicans' tax and spending bill last year, the so-called One Big Beautiful Bill.

6:11Alex Ossola:Some of these measures are still pretty new, like Maine's measure only went into effect in April and Washington's in March. But Massachusetts has been in place since 2022. What effect have we seen on that state's balance sheet as a result of this tax? In 2022, voters there approved a 4 % surtax just to the portion of the income that's over a million dollars in that state. And the state collected$3 billion just from that extra surcharge in 2025. And that was up from$2.5 billion a year earlier. So it's providing a substantial chunk of change to Massachusetts. I want to zoom out for a second to ask you both.

6:51Alex Ossola:You know, it seems like this idea of having the wealthy pay more in some sort of tax is kind of catching on lately more than in the past. Why now? Well, partly because of the cuts in the One Big Beautiful Bill. A lot of blue states are saying we need new sources of revenue. We have wealthy people in our states. We don't want to punish them for being wealthy, but we need them to pay more. And they are actually pretty popular among regular folks, too. There is rising anger or discontent in the country over wealth inequality, income inequality. And so these taxes tend to be very popular among voters.

7:29They are not, of course, popular among wealthier people, and including small business owners who own restaurants, who maybe are making a good living doing that sort of thing. So it isn't just hitting tech billionaires. Yeah, I will say the progressive wing of the Democratic Party, as they have gained prominence nationally, I would say we are seeing more and more discussion of this idea in states where that flank of the party is gaining strength. And if you're not very wealthy, the idea of taxing wealthy people who aren't you has a lot of appeal. And polling shows that across a number of states across the country, including in California.

8:03Alex Ossola:Coming up, who's opposing these efforts to tax the rich? It's more than just billionaires. We'll get into it after the break.

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8:39Alex Ossola:So in California, the billionaire tax measure has enough support to make it to the ballot, at least that far. But as you sort of alluded to, there is also some pushback. What form is that pushback taking and how prominent is it? It is a fascinating coalition of people opposing it, including the current governor, Governor Gavin Newsom, and the leading Democratic Party candidate to replace Newsom, a man named Javier Becerra. There is a broad coalition of groups that have come out in opposition to the tax. That includes the California Teachers Association, Planned Parenthood of California, and the California Medical Association, which is an industry group that represents thousands of doctors in the state.

9:22So groups that have ties to both health care and labor that are creating distance between themselves and this health care union that's backing the tax. Only a handful of prominent people have come out in support of the billionaire tax. That includes Congressman Ro Khanna, who represents Silicon Valley, as well as Senator Bernie Sanders, the independent from Vermont.

9:41Alex Ossola:I find it pretty surprising some of the people who you just said were opposing this measure. What are they saying is the biggest issue with it, besides that they're rich and they don't want to pay taxes? Well, the governor has been against it since it was first introduced and actually has always generally been opposed to wealth taxes on assets. He has said that there's a great risk that billionaires will leave the state. places like Florida, places like Texas, places like Tennessee, where you can get a lot more value for your money and you won't be subject to this kind of tax. That is an idea that is hotly debated.

10:15It's hard to know where people actually pay taxes. So it's sometimes difficult to say this state is their residence, this state is not their residence. But my sources are telling me that there are a number of California billionaires that are considering it. And some very high profile, high net worth billionaires have already started making moves to create distance between themselves and the state.

10:34Alex Ossola:Jean, have we seen that actually happen in states that have implemented, admittedly, a slightly different tax? I have not seen any evidence in data form of whether rich people flee these states. Economists will say there isn't a ton of evidence over time of people actually in large numbers moving states because of tax changes. You do hear some wealthy people speaking out against these taxes. In Washington state, a group of wealthy residents tried to mount a lawsuit against it saying that it violates the state's constitution. In Maine, actually, I heard from quite a few wealthy Mainers who said they were supportive of this new income tax, including Stephen King, the author who lives in the state.

11:24He said, if I can afford to send my kids to college and have a nice home and have a retirement that is comfortable and still have a lot of money left over, why shouldn't I help others?

11:34Alex Ossola:So other leaders elsewhere in the U.S. have expressed interest in implementing similar taxes on the wealthy. New York City Mayor Zoran Mamdani won his election on a platform of taxing the rich. And hikes on top earners are a priority for some Democrats and progressive groups as they head into elections this fall, places like Rhode Island and Colorado. What can these leaders learn from governments that have already done this? There is a growing conversation about what a change in the federal tax structure would need to look like. Governor Newsom in California has said that he actually supports a national reform to the tax structure because he thinks that there's no other way to really tackle the question of inequality in the tax system.

12:16And income is not always a great way to try to extract more revenue from the wealthy because there are a number of ultra wealthy and high net worth residents of the U.S. who don't pay that much in income taxes. And that's partly because of this structure called buy, borrow, die. It's a tax strategy that allows the wealthy to buy assets and borrow against them to get cash to live on instead of selling those assets and incurring capital gains or other taxes at the time of sale. This is a structure that allows very wealthy people to both get cash to live on and allow their assets to accrue value over time without really having to have a tax bill come due.

12:51And there are now growing discussions, including with Governor Newsom and others, about how you might go about closing loopholes like that in the federal tax code. That's not something that you would be able to address at the state level.

13:03Alex Ossola:Laura, Jean, thank you both so much for joining me. Sure thing. Thank you. Thank you, guys. And that's it for What's New Sunday for July 12th. Today's show is produced by Dani Lewis with supervising producer Melanie Roy. I'm Alex Osola, and we'll be back tomorrow morning with a brand new show. Until then, thanks for listening.

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