Taxing the Rich One State at a Time

If the rich will not be taxed at the federal level, perhaps they will be state-by-state. California Governor Jerry Brown has suggested that state residents who make more than $250,000 should pay a special tax meant to support specific state programs. The effort may work, and other states could follow.

Brown plans to bypass the legislature with his plan and will fight to get it on the ballot in November 2012. He also proposed a sales tax increase of 0.5% to cover some of the budget shortfall in the nation’s largest state by population and GDP. The two levies combined, Brown claims, will bring in $6.8 billion a year for five years. That is a great deal of money for a state that has run huge deficits.

Brown could succeed where certain members of Congress and the president likely will not. Democrats believe that a national tax on the wealthiest Americans would help close the U.S. budget gap. Republicans say that such a tax is unreasonable because rich Americans help create jobs through consumer expenditures and the businesses many of them run.

A wealth tax at the state level is something the federal government cannot block. It could be popular in states that have been crippled by the recession. As people in these states increasingly have lost jobs, the value of their homes and in some cases unemployment benefits, there is an appeal to tax those who have remained employed and, in many cases, have gotten richer.

The way for politicians to sell these taxes to voters and state legislatures may be to tie money collected to individual causes. This could include education, a part of many state programs that has suffered as the recession deepened. It would be hard to argue that bettering young people is not a worthy cause. The same could be said of caring for older residents or those who have lost employment benefits.

The rich may think that the gridlock in Washington will keep their tax rates where they are now. States may change that calculus completely.

Douglas A. McIntyre