Wealth tax plans face a design test as states target top earners

State tax plans aimed at billionaires, million-dollar earners and luxury second-home owners are putting a basic budget question back in front of investors: how much revenue can governments raise from people who can move? The answer matters because these policies can affect state finances, public spending debates and the tax bills of high-income households.

California’s proposed “2026 Billionaire Tax Act” would place a one-time 5% wealth tax on resident billionaires, according to the ballot initiative language. Washington state passed a Millionaires Tax in March 2026 that would tax income above $1 million at 9.9%, according to state Senate Democrats. New York City has proposed a pied-à-terre tax, a surcharge on second homes valued above $5 million, according to Gov. Kathy Hochul’s office.

The shared goal is straightforward: collect more from people with the greatest ability to pay. The hard part is behavior. A wealth tax targets assets, such as company stakes or real estate holdings, rather than annual income. If the tax is large enough, some taxpayers may relocate, a reaction known as capital flight, meaning money and the people who control it leave the taxing jurisdiction.

The mobility question

California has already seen several high-profile departures since the billionaire-tax proposal surfaced. Yahoo Finance reported that Google cofounders Sergey Brin and Larry Page and venture capitalist Peter Thiel have left the state. Some observers have raised similar concerns about Washington’s millionaire tax before it takes effect in 2028.

The economic risk is that a state does not just miss out on the new tax. If enough high-income residents leave, the state can also lose the taxes they were already paying. That is why the size and scope of the tax matter.

Evidence on wealth taxes is mixed, and the design details appear to matter. The Organisation for Economic Co-operation and Development reported that 12 countries had net wealth taxes in 1990, while only four OECD countries still levied recurring net wealth taxes on individuals in 2017. The OECD said many countries repealed such taxes after finding they raised limited revenue and created administrative and mobility problems.

Switzerland is the main counterexample cited in the debate. Research from Wealth and Policy says Swiss cantons apply wealth taxes ranging from 0.1% to 0.7%. The system is broader and lower-rate than many failed wealth-tax attempts, which is one reason analysts point to it as a more durable model.

U.S. millionaires have been less mobile than feared

Research on U.S. taxpayers suggests high earners do move for taxes, but not at the scale critics sometimes imply. A study of more than 45 million tax records from 1999 through 2011 found that millionaires had a migration rate of 2.4%, below the 2.9% rate for the broader population.

The same researchers modeled a world where all states had identical tax rates and found that elite migration would fall by about 2%. That points to some tax-driven movement, but also suggests many wealthy households are tied to jobs, schools, families and local networks.

Tax Foundation data adds another piece of context. When the U.S. income tax began in 1913, the top 1% of households paid an effective income tax rate below 15%. Effective rate means the share actually paid after deductions, exemptions and other tax rules. The Tax Foundation says that rate did not exceed 40% for more than three decades and was around 42% in the 1950s, even though top statutory rates were much higher.

Revenue is only one side of the ledger

Spending discipline is part of the same fiscal debate. The Government Accountability Office said the federal government made $236 billion in improper payments in 2023, including payments to people who were deceased or no longer eligible for programs. The GAO said improper payments have risen nearly sevenfold over the past two decades.

Financial writer Nick Maggiulli argues that recent proposals show why tax design is central. In his analysis, California’s 5% billionaire wealth tax is vulnerable because it is a large charge on a very small group. He gives Washington’s millionaire tax a better chance because it applies to a broader group, while noting it may face legal challenges. He views New York City’s pied-à-terre tax as more likely to work because it is more modest and applies to more than 13,000 units, based on an estimate from the New York City Comptroller.

The broader lesson from the research is narrow but useful: taxes on the wealthy have tended to work better when rates are modest, rules are predictable and the base is broad. As Federal Reserve data show the top 1% holding a larger share of wealth in recent years, the policy debate is unlikely to fade. The revenue result will depend less on the slogan and more on the structure.

This story draws on original reporting from Of Dollars and Data.