On Thursday, January 19, New York and Connecticut lawmakers, along with legislators from California, Hawaii, Illinois, Maryland and Washington, introduced tax legislation targeting wealthy taxpayers. The pending proposals are similar to those promoted by Massachusetts Senator Elizabeth Warren during her 2020 presidential campaign and were funded by Fund Our Future, a tax policy advocacy group.
The New York proposal seeks to increase capital gains rates and adds to existing bills introduced earlier this month and in 2021, which are summarized briefly below.
I. Senate Bill 2162, introduced on January 19, proposed an additional tax on long-term capital gains, dividends or any other type of capital gain income of:
II. Senate Bill 1570, introduced on January 12, proposed a mark-to-market tax on New York residents with net assets worth $1 billion or more at the end of each taxable year beginning in 2023.
III. Senate Bill 3462 (Assembly Bill 4643A), introduced in January 2021, proposed creating separate taxes on inheritance and gift income, amending the computation of the estate tax, and creating a gift tax. These proposals were referred to the New York legislature's Ways and Means and Budget and Revenue committees in January 2022 without further action.
Two separate Connecticut bills propose increasing marginal tax rates, establishing a capital gains surcharge and restructuring certain taxes as follows:
The Connecticut provisions also include those favorable to less wealthy taxpayers, including a $500 refundable child tax credit (for up to three children), expanded and increased property tax credits, and a reduction in the 5.5% marginal rate to 5%.
The Washington Post quoted a New York state senator as saying, "The point here is to make sure we do at the state level what is not being done at the federal level." Wealth taxes like the New York mark-to-market tax are an untested form of taxation in the United States, where taxpayers would have to pay annual taxes on asset values rather than on income. Passage of such legislation would almost certainly prompt wealthy taxpayers to consider relocating to lower tax jurisdictions and could raise constitutional challenges as well as practical problems like valuing assets with unrealized gains.
Even if taxpayers in New York and Connecticut feel that proposals like these are unlikely to become law now, they would be well advised not to dismiss the possibility that these measures could gain traction over time. As previously discussed here, Massachusetts, another Democratic-leaning state in the Northeast, recently passed a "millionaires tax" after six failed attempts to impose a progressive tax system dating back over 100 years. Thus, even if New York and Connecticut fail to pass the legislation described above, the mere existence of such legislation could be a harbinger of things to come.
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