Millionaire Tax Movement Grows as States Tackle Budget Pressures

A wave of Democratic-led states is embracing a strategy that was once considered politically impossible: raising taxes on the wealthiest residents to address widening inequality and mounting budget shortfalls.

Maine Gov. Janet Mills signed legislation this month that will add a 2% tax to households whose income exceeds $1 million per year. Maine and Washington, which enacted its own law last month, are among the latest Democratic-led states to ask for more tax dollars from the rich as national wealth inequality widens and states face heightened budget pressures.

The push reflects a fundamental split in the nation's tax landscape. Twenty-three states have reduced their top marginal income tax rates since 2021, while six states have gone in the opposite direction, yielding a widening gulf between high- and low-income-tax states. Maine and Washington follow the lead of other states including New Jersey and Massachusetts that have implemented specific taxes for the rich. The idea is gaining traction as lawmakers in at least a dozen states, including Illinois, Minnesota, Rhode Island and Virginia, have proposed new taxes for the wealthiest taxpayers.

Proponents argue these taxes address an imbalance in state finances. Working- and middle-class households in Maine — including teachers, firefighters and nurses — are paying effective state income tax rates similar to or higher than those of the highest earners. Between 1980 and 2022, the share of national income going to the top 1% doubled, while the share going to the bottom 50% fell by a third.

Recent federal policy changes have only exacerbated the need for progressive state tax changes. President Donald Trump's major tax and spending bill, often called the One Big Beautiful Bill Act, slashed funds for safety net programs including food stamps and Medicaid while providing tax cuts that largely benefit the wealthy.

However, critics warn that higher taxes on the wealthy could drive out businesses and high earners. The economic consequences of adopting one of the nation's highest top rates would affect far more than this small slice of Maine taxpayers by reducing the state's economic competitiveness. Many filers will report $1 million or more in income only once or twice, such as when they sell their business or an investment property.

The debate reflects broader uncertainty among states trying to balance competing priorities. Policymakers face the most pervasive budget pressures since at least 2020 as continued revenue stagnation makes budgeting more difficult. Many states are reporting that their budgets are structurally imbalanced, with insufficient recurring revenue to support recurring expenditures.

Some Democratic leaders remain cautious. Gov. Gavin Newsom has opposed any wealth tax over concerns that it would drive high-income earners out of California and dampen the tax base.