Are blue states waging a war on wealth with their latest tax hikes? A growing number of Democrat-leaning cities and states are rolling out or proposing steep taxes on high earners and luxury assets to plug budget holes and counter federal funding cuts. This trend raises serious questions for wealth-builders about where to live and invest.
According to The Wall Street Journal, from Washington to Rhode Island, these regions are targeting the rich with increased income taxes, capital-gains levies, and new taxes on high-value vacation homes to address deficits and offset losses from President Trump’s new tax law.
Let’s rewind to 2022, when Massachusetts voters greenlit a 4% surtax on incomes over $1 million. This “millionaires tax” has since raked in nearly $3 billion in the 2025 fiscal year, up from $2.46 billion previously. It has become a blueprint for other states seeking revenue.
Fast forward to May, when Washington Gov. Bob Ferguson signed a budget that hiked capital-gains taxes. This move aims to address the state’s budget shortfall and prepare for potential federal funding cuts. Maryland Gov. Wes Moore followed suit, increasing income-tax rates for those earning over $500,000 annually.
In June, Rhode Island introduced a novel “Taylor Swift tax” on vacation homes worth $1 million or more, set to start next summer. Named after the pop star with a property in Westerly’s elite Watch Hill area, it’s another attempt to balance the state’s books.
Connecticut isn’t far behind, with lawmakers proposing higher income-tax rates on couples earning at least $500,000 and individuals earning at $250,000. This is a direct response to expected federal funding losses under the new tax law.
Why the sudden rush to tax the wealthy? Many states face projected deficits after ramping up spending and slashing taxes in the post-pandemic years, even before the new GOP tax law’s impact. President Trump’s legislation extends federal tax cuts to the rich while trimming programs like Medicaid, leaving states scrambling.
Most of the 19 states assessing budgets three years out are already forecasting shortfalls. Some may need to boost funding for food assistance or Medicaid to offset federal cuts, adding to their financial strain.
The new federal tax law also complicates state tax codes, pushing legislators to rethink revenue strategies. Some are turning to groups like the Institute on Taxation and Economic Policy for help designing progressive tax policies aimed at high earners.
Here’s the rub: will these tax hikes spark an exodus of the rich? Low-tax advocates warn of “tax flight,” citing cases like the U.K., where some wealthy individuals bolted after a tax loophole closed. In New York City, mayoral hopeful Zohran Mamdani’s proposed 2% tax on incomes over $1 million has fueled similar fears.
Yet, research paints a nuanced picture. A forthcoming study by Cornell sociologist Cristobal Young and Treasury’s Ithai Lurie, analyzing 3.9 million tax filings, found that millionaires post-2017 federal tax changes weren’t more likely to move than peers in low-tax states. Those with deep community ties—think kids in school or local businesses—tend to stay put.
Young puts it bluntly: “Money should make mobility happen, but moving your home is not fun.” Still, billionaires, especially older ones, seem more tax-sensitive, with studies showing relocations to avoid estate taxes.
The ultra-wealthy’s location matters—big time. Economists estimate the 2019 death of billionaire David Koch could have netted New York state billions over the years. A 2025 research paper also found that while a 1% wealth tax hike cuts the rich population by 2%, the revenue often outweighs the loss.
For investors and high earners, the takeaway is clear: monitor state tax trends closely. If you’re “embedded” in a high-tax state, staying might make sense—but have a Plan B in low-tax havens. Wealth-building demands flexibility in this shifting landscape.