Next month's ballot measures in California, Rhode Island and other states will test whether voters want to raise taxes on high earners or reduce them, reflecting a growing divergence in state income tax policy that is reshaping where wealthy Americans choose to live.
Voters in several states will decide next month on ballot initiatives that could significantly affect high earners, with California leading the way on a proposed wealth tax. The measures come amid rising populism and calls for the wealthy to pay more, as well as intensifying competition among states to attract top earners.
"Over the last few years, we've seen a divergence in state income taxes and taxes on high earners," said Jared Walczak of the Tax Foundation. "We've seen many states cut individual taxes and others going in the opposite direction."
California's so-called Billionaire Tax Act would impose a one-time tax of 5% on the total net worth of residents worth $1 billion or more. The measure would apply to about 200 of the state's richest residents and needs only a simple majority to pass. A recent University of California, Berkeley poll shows 45% in favor and 43% opposed. The proposal has divided Democrats and split Silicon Valley, with several billionaires already having left the state for Florida.
Rhode Island this summer joined the "millionaire tax" club by passing legislation that adds a phased 3% surcharge on earners making more than $1 million, creating a top rate of 8.99% by 2029. Massachusetts, which passed a similar measure in 2022, has seen the tax raise over $3 billion in the 2025-2026 fiscal year. Yet a study by the Boston-based Pioneer Institute found that Massachusetts lost over $4 billion in adjusted gross income in 2023 from high earners leaving the state.
At the other end of the political spectrum, more than a dozen states are reducing or eliminating their income taxes. South Carolina, Arkansas, West Virginia, Georgia, Indiana, Kentucky and Utah all passed income tax reductions this year.
Analysis
Why This Matters
- The outcomes could accelerate wealth migration from high-tax states, reshaping state budgets and housing markets.
- Ballot measures will test whether voter support for taxing the wealthy translates into law, potentially inspiring copycat initiatives.
- The K-shaped economy and growing divergence in state tax policy are forcing high earners to make location decisions that affect local economies.
Background
State tax policy in the U.S. has been diverging sharply over the past decade. Some states, particularly those led by Democrats, have imposed surcharges on high incomes and wealth. Others, often under Republican control, have cut or eliminated income taxes to attract residents and businesses. Massachusetts' 2022 millionaire tax, which added a 4% surcharge on income above $1 million, was a landmark that generated far more revenue than expected but also triggered debate about out-migration. The November ballot measures represent the next chapter in this national experiment.
Key Perspectives
[Proponents of wealth taxes]: They argue that the ultra-wealthy have benefited disproportionately from the economy and should contribute more to fund public services. California's billionaire tax is framed as a way to raise revenue from those who can most afford it.
[Opponents and business groups]: They contend that such taxes drive high earners and entrepreneurs to lower-tax states, eroding the tax base and harming economic growth. The Massachusetts experience, with billions in income lost to out-migration, is cited as a cautionary tale.
[Tax policy analysts]: The Tax Foundation and similar groups note that the middle ground in state income tax rates has hollowed out, creating a stark choice for high earners: either pay significantly more in some states or significantly less in others.
What to Watch
- The final vote tally in California on the Billionaire Tax Act, and whether it passes by a margin that encourages or deters other states.
- Revenue and migration data from Massachusetts and Rhode Island in coming years to gauge the real economic effects of millionaire taxes.
- Legal challenges, such as the ongoing suit against New York's tax on high-end second homes, which could test the constitutionality of these measures.