What California, Massachusetts ‘Millionaire Tax’ Plans Mean for Taxpayers

How states plan to spend revenue from “millionaires’ tax.”

While the proposed taxes sound similar, there are differences in how each state plans to use the revenue.

In Massachusetts, assuming voters approve the measure, the tax is expected to generate $1.3 billion in revenue in 2023, according to a Tufts University analysis. The state aims to use the revenue to fund public education, roads, bridges and public transport.

California’s tax is expected to raise $3.5 billion to $5 billion annually if passed, and the state plans to use the proceeds to pay for zero-emission vehicle programs and wildfire response and prevention.

Whether voters support higher income taxes or not, revenue plans often influence results on Election Day, experts say.

“We’ve seen voters reject an income tax increase on high earners, even though it affects a relatively small number of people,” said Jared Walczak, vice president of state projects at the Tax Foundation. “And we’ve seen them pass income tax changes that would affect many.”

We’ve seen voters reject an income tax increase on high earners, even if it affects a relatively small number of people.

Jared Walczak

Vice President of State Projects at the Tax Foundation

Overall, there’s one clear trend in state tax votes: Voters care about money plans, he said.

With funds earmarked for zero-emission vehicle subsidies, Proposition 30 is opposed by Gov. Gavin Newsom, who believes the measure will negatively impact the state’s economy without providing benefits that “generally accrue to Californians,” Walczak said.

There was a push for progressive taxes in Massachusetts

Another factor that could influence voters is the current state income tax structure, experts say.

“Massachusetts has been talking about creating a progressive tax rate for a long time,” said Richard Auxier, senior policy director at the Urban-Brookings Tax Policy Center, noting that the current flat income tax is 5% regardless of income.

“Part of that is they want that ability to move some of the state’s overall tax burden up the ladder,” he said.

In contrast, California has a graduated state income tax system with a top rate of 13.3% for individuals earning more than $1 million a year.

‚ÄúCalifornia already has a very high cap [tax] rates,” Walczak said. “While voters are generally in favor of progressive taxes and support higher rates for high-income earners, they may feel that this goes far enough.

Walczak said he doesn’t believe the proposed millionaire taxes are part of a broader trend at the state level. As of 2021, about 21 states have cut personal income taxes, and only one state, New York and the District of Columbia, has raised fees.

“You can’t tell much about what the voters want just based on access to the ballots,” he added.

Federal plans for higher taxes on the wealthiest Americans have failed

Despite growing interest in taxing the ultra-rich, the federal proposals failed to gain ground.

Sens. Elizabeth Warren, D-Mass. and Bernie Sanders, I-Vt., along with other Democrats, in March 2021, after releasing conflicting estate tax proposals during the 2020 presidential primaries, released the Ultra Millionaire Tax Act, a 2% annual tax on estates over $50 million and 3% on assets over $1 billion.

And Senate Finance Committee Chairman Ron Wyden, D-Ore., in October 2021 proposed a tax plan to hit Americans with more than $1 billion in assets or more than $100 million in adjusted gross income for three consecutive years.

In March, President Joe Biden introduced an estate tax proposal as part of his 2023 budget that calls for a 20 percent levy on households worth more than $100 million.

While many Americans approve of higher taxes on the ultra-rich, these plans have failed to gain widespread support.

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