States Weigh Taxing the Rich as Budgets Face Strain

Proposals to raise taxes on millionaires and billionaires divide states as they seek to balance budgets

Published on Feb. 18, 2026

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As state legislatures grapple with budget deficits, some are considering raising taxes on high-income earners to generate more revenue for schools, infrastructure, and public services. However, critics warn that such measures could prompt wealthy residents to move to other states with lower taxes. The debate highlights the challenges states face in funding critical needs while avoiding policies that could drive out their tax base.

Why it matters

The push to tax the rich comes as states face budget shortfalls that threaten funding for key public services. Proponents argue the added revenue is needed, while opponents warn it could backfire by prompting wealthy residents to relocate. The outcome of these proposals will impact state budgets, public programs, and the tax burden on middle-class families.

The details

Fourteen states are facing budget deficits that could lead to cuts in education, infrastructure, and other services. Some states, like Washington, Rhode Island, and New York, are considering adding new tax brackets for millionaires, while Massachusetts has already passed a surtax on those earning over $1 million. California is going even further with a proposed 'Billionaire Tax' that would levy a one-time 5% tax on residents with a net worth over $1 billion. However, business groups and some officials warn these measures could drive high-earners to move to states with lower taxes.

  • In 2022, Massachusetts voters passed the Fair Share Amendment, adding a surtax on those claiming over $1 million in income.
  • California's 'Billionaire Tax Act' will be on the state's general election ballot in November 2026.

The players

Jessica Tang

President of AFT Massachusetts, who helped campaign for the Fair Share Amendment in Massachusetts.

Suzanne Jimenez

Chief of staff of the SEIU-UHW, a union for healthcare workers in California, who argues that hospitals need more funding to survive recent Medicaid cuts.

Gavin Newsom

Governor of California, who has expressed concerns that the state's 'Billionaire Tax' proposal has had a 'very negative impact' as billionaires and high-earners leave the state.

Kent Smetters

A professor at the Wharton School, who notes that the rise of remote work has made it easier for high-earners to leave areas where they don't feel welcome.

California Chamber of Commerce

A business group in California that has lined up in opposition to the 'Billionaire Tax Act,' arguing that a one-time tax 'does nothing to solve the state's systemic budget problems.'

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What they’re saying

“Every child in Massachusetts now has free breakfast and lunch at school as a result of the tax.”

— Jessica Tang, President of AFT Massachusetts

“No one else is offering a solution.”

— Suzanne Jimenez, Chief of staff of the SEIU-UHW (CNN)

“We're competing with 50 states. Capital flows and move(s). That's real. It's not imagined. It's very, very real.”

— Gavin Newsom (World Economic Forum)

What’s next

California voters will decide the fate of the 'Billionaire Tax Act' in the November 2026 general election.

The takeaway

The debate over taxing the rich highlights the difficult trade-offs states face in funding public services while avoiding policies that could drive away their tax base. The outcome of these proposals will have significant implications for state budgets, public programs, and the tax burden on middle-class families.