Tax the rich in '26? These 3 crucial questions about wealth taxes could be answered this year.

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MW Tax the rich in '26? These 3 crucial questions about wealth taxes could be answered this year.

Andrew Keshner

'It's not like flipping a switch, but I think the conversation is shifting,' one think-tank researcher says

Democratic-leaning states like California are at the forefront of potential tax hikes on super-rich Americans. What happens next?

A new year has unleashed a new round of debate on how much more money America's super-rich should be paying in taxes.

The fight over more taxes for the 1% isn't new, but nagging questions in the tax-the-rich debate might finally get better answers in 2026.

"I think that 2026 has a potential to be a very significant year for wealth taxes, simply because we're going to learn something," said Jared Walczak, senior fellow at the Tax Foundation.

Those answers could include: When Americans say wealthy people should pay more taxes, will they follow through and actually vote to enact new taxes on the wealthy? How much do high taxes spook super-rich people - and how far will they go to avoid them? Is wealth, as opposed to income, actually taxable?

Where will these questions be answered? Go west as a start.

Signature collecting starts this month for a California ballot measure that would impose a one-time 5% tax on state residents who are worth at least $1 billion. Most of the money would go to the state's Medicaid program, according to the ballot measure. State education and food-assistance programs would receive the rest.

The exodus among some high-profile billionaires have already started, including Google $(GOOGL)$ $(GOOG)$ co-founder Larry Page, according to reports. But Nvidia (NVDA) CEO Jensen Huang has said he's "perfectly fine" with the tax.

California is at the center of the debate, but it's not alone. In Washington state, Gov. Bob Ferguson, a Democrat, wants a higher income tax on millionaires.

In New York City, newly inaugrated Mayor Zohran Mamdani, a democratic socialist, has reiterated his call for higher income taxes on the city's wealthy, in order to provide universal childcare. But he'll need the support of state lawmakers to make his tax hike a reality.

Rhode Island Gov. Dan McKee, a Democrat, is also reportedly mulling more taxes for millionaires.

In Michigan, there's an effort to establish a November referendum adding an extra 5% tax on married couples with at least $1 million in taxable income, or $500,000 for individuals. The money would go to the state's school system.

President Donald Trump won Michigan in the 2024 presidential election, and California Gov. Gavin Newsom -a potential contender for the Democratic Party's 2028 presidential nomination - has said he's against the proposed ballot measure in his state. Still, the 2026 crop of tax-the-rich efforts are unfolding in mostly Democratic-leaning states.

That's in contrast to Republican-leaning states: Eight states reduced their income-tax rates for all residents in 2026, and Ohio shifted to a flat tax. Trump won each of them in the 2024 election.

It's no coincidence the new proposals follow last summer's massive federal tax law.

Republicans emphasize the array of tax breaks in the One Big Beautiful Bill Act are focused on working-class and middle-class families - but high-income households stand to reap the biggest benefits. For example, the same law also prevented a jump in tax rates - including the top rate, which remained 37%. It made tax breaks for businesses more generous and kept the estate tax permanently higher.

"All of those income-tax rates and the better estate-tax structure have all been extended permanently," said Tara Thompson Popernik, executive vice president of wealth planning at LPL Financial. "Now at the state level, legislatures are looking to raise additional revenue because those same taxpayers did not get hit at the federal level last year. "

The massive federal law is also reducing funding for and tightening rules around Medicaid, a joint federal and state program that offers health insurance to low-income households. "It is that gigantic, unnecessary, foolish and cruel crisis that this ballot measure is responding to," said Darien Shanske, a professor at the UC Davis School of Law, who helped write the tax language for the California ballot proposal.

Shanske is not surprised by the growing number of state proposals aiming at the top of the tax code. "Similar pressures are creating similar solutions," he said.

How serious are voters about wanting rich people to pay more taxes?

Polls generally indicate people feel that the tax code isn't fair. Most recently, 62% of people said billionaires pay too little tax, according to a YouGov poll conducted this month.

Democrats resoundingly feel this way, and there's a sizable share of Republicans who agree. In the poll, 39% of Republicans said billionaires' tax bills were too low, while 32% said they were taxed at a fair amount.

Does talk translate to action? What someone tells pollsters can differ from what they do in the voting booth.

State governments face tighter budgets while many consumers are hammered by affordability challenges, said Carl Davis, research director with the left-leaning Institute on Taxation and Economic Policy. The stock markets DJIA SPX COMP keeps breaking records at the same time, enriching the portfolios of wealthy Americans, he added.

"It's not like flipping a switch, but I think the conversation is shifting," Davis said. "There are a lot of reasons to suspect there will be more political will in 2026 and the years to come."

There was a brief moment last spring when Trump reportedly floated the idea of letting the top income-tax bracket return to 39.6% for individuals making at least $2.5 million, which would have increased their taxes and run counter to the GOP distaste for higher taxes.

That didn't happen - but it was telling, Davis noted. "The fact that it was even entertained, I think, shows it is not purely partisan and there is a recognition of a national mood of people being frustrated with what they see as the two-tiered economy," he said.

The prospect of higher state taxes for rich taxpayers has been an ongoing issue in recent years. For example, Maryland and Minnesota in recent years raised taxes on their richest residents.

In 2022, Massachusetts voters approved a 4% surtax on households making at least $1 million. The same year, Californians rejected a ballot initiative that would have added an extra 1.75% tax on households making at least $2 million.

"Sometimes there's an overestimate of voters' desire to tax other people," said the Tax Foundation's Walczak. As for 2026? "We'll see," he said.

Will millionaires and billionaires pull up stakes to avoid wealth taxes?

The California Billionaire Tax Act would apply to super-rich people who lived in the state as of Jan. 1, 2026.

That deadline seems to be prompting action: On the final day of 2025, Thiel Capital, the private investment firm founded by Peter Thiel, said it opened a Miami office to complement its Los Angeles operations. "Mr. Thiel has established a significant presence in Miami over the last several years, maintaining a personal residence in the city since 2020," the firm's press release noted.

The California tax would "trigger an exodus of capital and innovation," high-profile attorney Alex Spiro said in a letter urging Newsom to oppose the initiative. "Our clients have made clear they will permanently relocate if subjected to this tax," he wrote.

But will wealthy people really move en masse to beat a tax bill? Or is the prospect more anecdotal than systemic?

Right now, LPL's Popernik is watching the proposals - but no one is boxing up their house. Pulling up stakes is a big deal, and it may take a lot for people to convince state tax authorities that they've left for good and are no longer subject to a state's taxes, she said.

Popernik does see business owners moving to tax-friendly states years ahead of major transactions, like a sale that would produce a windfall. But generally, it's a more complicated decision - one where climate, lifestyle and proximity to friends and family matter a lot.

"You have your handful of clients who are going to be a little bit more tax-driven in their decision making. But by and large, home is where the heart is," she said. That's particularly true for rich families, "who have the privilege of choosing where to settle and spend their time."

Studies have sparred over how taxes impact where people choose to live. Ahead of Mamdani's landslide victory, a progressive think tank, the Fiscal Policy Institute, looked at state tax data. Researchers wrote they "consistently" saw that "New York's top 1% of earners move out of the state at the lowest rate of all income groups." That was even after a 2021 income-tax increase for New Yorkers with at least $1 million in income.

On the other hand, a 2019 study found billionaires tended to move out of states with estate taxes, and especially as they aged.

Florida and Texas were the top two destinations for 2025 one-way U-Haul moves, the company said this week. Both states have no income tax. California, meanwhile, had the largest outmigration number of do-it-yourself movers for the sixth straight year.

Ultrahigh-net-worth households likely aren't packing their own U-Haul vans, Walczak noted. But it illustrates a larger point, he added: High costs, including taxes, can push people out of places like the Golden State. "All these things run together."

Is wealth even taxable?

Most of the current state bids for higher taxes would come in the form of higher income taxes.

And then there's the California proposal, which taxes a person's net worth - even the assets that have gained value but haven't been "realized."

"We've never had a wealth tax. We've never had an asset tax that captures your investment," Walczak said. "This would be entirely new in the United States and it would be extremely rare globally."