FEB. 1, 2023: Wealth tax proposals in states renew debate over effectiveness

Feb 26, 2023
1 year ago

New proposals in eight states to raise taxes on the wealthy have raised eyebrows and questions about their chances of passing, as well as their impact and effectiveness. It’s a reversal of a recent trend that saw wealth taxes in decline around the world after mixed results, Steven I. Weiss reports.

Also in this issue, we talked with Anthony Messina, who runs Toronto-based Guardian Partners, about how his family-office clients define success. He tells us what he considers the most important issues for wealthy families this year, how to close the talent gap in family offices and how to avoid going “shirtsleeves to shirtsleeves” in three generations.

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HANDPICKED: Wealth tax proposals in states renew debate over effectiveness


Recent efforts in eight states to impose new taxes on the wealthy may be unlikely to pass but are reigniting a debate over the effectiveness of a wealth tax — which had been losing popularity around the globe.

“There is a level of interest in these types of taxes as more research comes out showing how many billionaires don’t pay a lot or don’t pay any income tax,” said Sam Waxman, a senior policy analyst at the progressive Center on Budget and Policy Priorities.


Proposals in eight states aim to raise taxes on the wealthy.

  • In 1990, 12 countries in Europe had wealth taxes; only three have them now.
  • Some European wealth taxes were ineffective at raising revenue, according to multiple studies.
  • The U.S. proposals have few sponsors and are not expected to pass.

In the past year, tax avoidance by wealthy individuals has made headlines in reporting exposés by ProPublica and other news outlets, prompting calls to close myriad loopholes and raise taxes on wealthy Americans. 

In the same week that the state-level legislation was introduced, more than 200 millionaires released a petition calling for increasing taxes on the wealthy. Prominent among the signatories were actor Mark Ruffalo, Disney heiress Abigail Disney, billionaire Cynda Collins Arsenault and Men’s Wearhouse founder George Zimmer. 

And at least 12 U.S. billionaires, including Warren Buffett and Bill Gates, have pushed for higher taxes on the wealthy at the federal level. 

A slim majority of Americans polled by Gallup 2022 agreed that the government should “redistribute wealth by heavy taxes on the rich” — and the number of respondents in the top third of earners who agreed with that sentiment has grown in the past 15 years. 

The surge in interest represents a reversal of a global trend, with wealth taxes in decline until the late 2010s. Although a wealth tax has never been imposed anywhere in the United States, it has been popular in Europe and South America. Twelve European countries had them in 1990, but all except three discarded them over the past few decades.

That was part of a trend that can be viewed “as part of a more general trend towards lowering tax rates on top income-earners and capital,” the Organisation for Economic Co-operation and Development noted in a report.

In the past few years, the landscape has shifted. Several European countries have recently added a kind of wealth tax that pertains only to certain assets, such as real estate in France and investments in securities accounts in Belgium. In South America, Argentina and Colombia have wealth taxes, with the latter having imposed one in 2019. 

No countries on other continents currently have wealth taxes.

Some earlier European wealth taxes were ineffective at raising net revenue, according to multiple studies. Countries often created large exceptions to the classes of assets that would be taxed, exempting farms or primary residences or certain objects of cultural significance, such as France’s exemption for investments in wine and brandy. The result was that the revenue gain was relatively small compared with initial predictions. 

Capital flight also reduced revenue from wealth taxes in addition to reducing the opportunity for taxing the income and capital gains that could have been applied to activity with those funds. In France, the 3.5 billion euros raised by a wealth tax from 1980 to 2007 were estimated to be a net loss, as other potential revenue lost from the impact of the tax was double that amount. 

The European countries that have kept their original wealth tax have tended to avoid the approach of exempting various asset classes and in doing so have had greater success. In a study by the International Monetary Fund, Norway’s model was found to have positive effects.


The proposals for state-level wealth taxes in the U.S. borrow from some of  the more effective models in use. They don’t have exemptions for asset classes, and the goal of coordination among multiple states is aimed at reducing the possibility of capital flight. 

In January, legislators in four states that lean Democratic worked to introduce wealth tax bills on the same day that legislators in four more blue states introduced bills to increase income taxes on high earners. The proposals vary from state to state. 

In California, the proposal seeks to collect a 1% wealth tax on $50 million or more of assets, with an increase to 1.5% for more than $1 billion in assets.

In Illinois, the aim of legislation is to tax the increase in market value of assets for taxpayers with more than $1 billion at 4.95%.

In New York, the strategy is to target the assets of those with more than $1 billion in assets, treat any increase in their market value as capital gains and raise the capital gains rate from its current range of 4% to 10.9%, depending on income, to 7.5% to 15%.

None of the bills carries the endorsement of party or legislative leadership, and all have relatively few sponsors. Because of this, the likelihood is low that any will pass, said Patrick Gleason, vice president for state affairs at Americans for Tax Reform. 

“Like the single-payer health care bills pending in New York and California that never go anywhere, these wealth tax proposals may end up as messaging bills, allowing some state legislators to prove their progressive bona fides by co-sponsoring a wealth tax bill that will never become law,” Gleason said.

By proposing legislation in multiple states at once, legislators hope to avoid one of the primary arguments against passing new and higher taxes at the state level. 

“Freedom of movement across state borders makes it easy to avoid the taxes by moving to another state,” said Emily Divito, a senior program manager at the Roosevelt Institute, a liberal think tank. 

State legislators and the coordinating groups had that freedom of movement in mind when they designed this multistate legislative push. “That’s part of why we are working as a multistate coalition,” Illinois state Rep. Will Guzzardi said in public comments. “We want to send a message that there is nowhere to hide.”

In recent years, two prominent billionaires — Ken Griffin and David Tepper — made headlines when they moved from their respective states of Illinois and New Jersey to the zero-income-tax state of Florida, citing tax policy as a motivation.

State-level legislative efforts “completely misunderstand the economics of how people might respond to this proposal,” said Daniel Bunn, president and CEO of the Tax Foundation. “You can move out of a state fairly easily.” 

As a better approach, Bunn suggested “a broader tax base” — collecting a higher share of taxes from the middle class and others who don’t rank among the wealthy. In particular, Bunn is advocating for “a broad-based consumption tax” while keeping the overall level of tax revenue the same.


Anthony Messina

Anthony Messina is the president of Toronto-based Guardian Partners Inc. and the head of private wealth for its parent company, Guardian Capital Group Ltd. The firm provides highly specialized investment services for many of Canada’s wealthiest individuals, families and institutions.

As we start this year, what are the most important issues for family offices?

It’s the first year in the last 45 years where bond and equity markets are both negative, and I think we have to be careful because we could have another year that is very similar. We don’t know what the Fed is going to do — probably raise rates — and we don’t know what the earnings are going to look like for corporations. So there’s a little bit of caution in what we do. Right now, our advice to our clients is to sort of stay still. There’s a saying: It’s important to stay still when you’re getting a haircut — whether they’re based in Canada, the U.S., the Caribbean or elsewhere.

A lot of wealthy families own a considerable amount of real estate — and some of that is financed, and some of that is tied to interest rates, and it’s revenue-producing. But there’s risk in real estate now that hasn’t been seen in 15 years or more. In the first three months of this year, we’ll see some signaling of what’s going on from a family-office perspective where the family is often located all over the world — one in New York, another in London, and another will live in Rome with property in Sardinia. They need to be global in their approach. Will China flood the market with goods when prices go down? What’s happening with the supply chain? Geopolitical issues like Russia-Ukraine? There’s a lot on the table right now.

How do you — and your clients — define success as a family office?

In years where the markets aren’t as turbulent, they’re really concerned about continuity and the continuity of their family and their wealth, of course. But they’re just as focused on effective family governance — how to engage everybody in the family toward the common goal. For example, let’s say you have one trust and everybody’s participating. Sally’s in charge of real estate, and Bob’s in charge of charitable giving. It’s really about keeping all of that together. And a lot of times, these families still have an operating business, which can complicate things. But it all comes back to family cohesion. 

Is there a talent gap at family offices — because the demand for professionals is greater than the supply? 

Some family offices are finding it difficult to get the top-tier talent they  deserve. They’re  outbidding pension plans, investment management firms on Wall Street for talent, and that can get quite expensive. The stickiness of some of those people isn’t what it was 25 years ago, so they move around.

What lessons can you share with someone who’s about to start a family office — about investing strategies, succession issues and philanthropy?

Make sure you leverage the people you know to find the people you need. And finding an independent thinker is in your best interest. Finding somebody who’s going to say yes to every idea you have is not in your best interest. If you’re the matriarch or patriarch of a family, you want someone who’s going to have the ability to present another angle to what you think is a great idea. You have to be open-minded to do that. 

As for succession, it’s key to bring in outside family governance professionals into the mix to help you create the right structure around your wealth. They’ve got to be independent professionals — because if one of the family members has a sniff that you have a dog in this fight, then the whole thing is wasted. 

Echoing the adage “shirtsleeves to shirtsleeves in three generations,” it is estimated that 70% of wealthy families will lose their wealth by the second generation and 90% by the third. Is that accurate?

It’s probably right. I’m 58, and when I was little, I remember some wealthy families that made their fortune in steel or construction — and they’re not that wealthy today. If you don’t do it right, it’s going to go away.

How do you help your clients meet their multigenerational goals?

It’s all about shaping the way the next generation thinks and making sure they understand the responsibility of being wealthy. That will shape how they view investments, growth, spending, philanthropy. And to understand how fast things can change. Take someone who is 25 or 27 — they’ve only seen the market go up, the rise of cryptocurrencies, low interest rates, and they believe that investing is easy. And over the last 15 months, we’ve learned that in fact it isn’t so easy.

Interview conducted by Marcus Barum


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