Blue states’ new wealth tax proposals aren’t really taxes at all; they’re rent-seeking behavior. These proposals are nothing more than an attempt to increase the states’ share of wealth without creating new wealth. Ironically, they are destined to do just the opposite and become “rent-losing” behavior.
There is a growing trend for wealth taxes. They are being proposed in a variety of places, with a variety of rates, and in a variety of forms.
Hawaii’s legislature is considering a bill (H.B. 1235) that would impose a 1% surtax on net worth over $20 million. In Illinois’s state legislature there is a bill (S.B. 3376) to mark-to-market unrealized gains of those with net assets over $1 billion. Maryland’s legislature has a bill (H.B. 1238) to add a surtax on individuals with net worth over $1 billion. There are proposals too in New York (unrealized gains on net assets over $1 billion), Rhode Island (1% on worldwide intangible assets over $25 million), Washington (tax on stocks, bonds, and other intangible assets), and Vermont is studying a wealth tax.
In addition to these wealth taxes, there are a host of traditional soak-the-rich income tax increases in Colorado, Hawaii, Illinois, Maine, Massachusetts, Michigan, Minnesota, New York, Oregon, Rhode Island, and Virginia—with Washington having just recently signed one into law.
Of course, the biggest headline grabber (and already a money loser) is California’s 2026 ballot initiative for a 5% tax on billionaire’s net worth.
Despite these proposals’ variety of locations, rates, and forms, they are all coming from one direction politically: blue states. Their stated goal is for the rich to pay their fair share. Of course, the rich already pay a disproportionate share of taxes and a disproportionate share on their income. Looking at the latest available data, the top 1% of earners paid 38.4% of total federal income taxes; the top 5% paid 59.3%; the top 10% paid 70.5%; the top 25% paid 86.3%; and the top 50% paid 96.7% of total federal income taxes.
Even under a flat tax rate, those with higher income pay higher taxes in proportion to their wealth: If everyone is taxed at a 10% rate, someone making $1 million pays ten times more ($100,000) than someone making $100,000 ($10,000).
However, America long ago passed this form of “fairness” in its taxation and moved to a progressive tax system: Tax rate percentages increase as income increases. In 2026, there are seven such brackets ranging from 10% to 37%, with income taxed at higher rates as it moves upward.
Such a progressive system of rates is justified by the assumption that money has a diminishing value to its holder as the amount held increases. Of course, $1 has the same purchasing power regardless of who holds it: This consistency of value is, after all, the fact that gives money its value.
Still the Left proclaims it and uses it to justify taxing at increasing rates. At least they did until they discovered that even today’s existing progressive tax rates were “unfair.” So, now they seek super-progressive rates on income and to extend the system to wealth, not just annual income.
The problem for blue states is red states: specifically, red states’ lower tax rates.
In America’s federal system, people can move freely between states. And they are: from blue states to red states. As E.J. Antoni of the Heritage Foundation reported earlier this year, from July 2024 to July 2025, California, New York, Illinois, New Jersey, and Massachusetts, had a net combined loss of 477,000; since 2020, these states have lost 3.7 million—roughly the entire population of Connecticut.
Taxes are not the only reason for the flight, but they are an easily quantifiable one. And an equally understandable one.
Blue states are facing the reality that in a free society tax rates are dependent on transaction costs: People will pay higher taxes only up to the level at which it is worth their trouble to move. That wealthier people have higher transaction costs in moving—selling houses and real estate, relocating businesses, etc.—is the reason wealthy people tolerate progressive tax rates at all.
Now blue states are pushing wealthy citizens beyond their transaction cost tipping point. People are moving. And they will only continue to leave.
Regardless of their many justifications—“fairness,” what the their new taxes are earmarked for, a supposedly temporary imposition (according to California’s proposed billionaire tax)—blue states are simply seeking to obtain “rent” from their wealthy: a larger share of their income for nothing in return—in truth often seeking more for less: poorer services, worse schools, more crime, etc.
Little wonder that more blue state citizens of all incomes are choosing to not pay more for less and leaving. And they are taking their incomes, their wealth, and their tax dollars with them when they go.
The irony is that while blue states are rent-seeking, they are becoming “rent-losing” in the process.
