Illinois lawmakers don’t know the answer, but that didn’t stop them from including a social media platform “fee” (tax) in the budget. In a new Tax Foundation piece, I refer to the new law as a shambles, but that may be an understatement. More than a decade ago, the term “omnishambles” entered the political lexicon, and that seems an apt description of the new Illinois social media tax. It’s abundantly clear that the budget writers didn’t know how to tax social media, so they just omitted virtually all the crucial details, leaving them for taxpayers and regulators to sort out. And in the few areas where they did specify any details, they managed to embed contradictions and calculation errors.

Is the tax on users or accounts? If someone has multiple accounts, are all of them taxed separately? If they have accounts on multiple services run by the same company, is that one user/account or several? Is someone an Illinois user for a given month if they’re just visiting the state, or only if they live there or primarily access social media from there? If the latter, for accounts without billing addresses (most social media accounts are free and some are wholly anonymous), should social media platforms rely on their most common IP address location or something else?

For that matter, what is a social media platform? The definition, which is anchored in permitting account registration and “primarily serv[ing] as a medium for users to interact with content generated by other users of the medium,” is potentially broad enough not just to capture Facebook, X, LinkedIn, YouTube, and Instagram, but also, potentially, WhatsApp, GitHub, Teams, Slack, Goodreads, Google Groups, iCloud, iMessage, Dropbox, Strava, Salesforce, Yelp, Indeed, Substack, and, under the most expansive reading, perhaps even Gmail. What platforms will ultimately be subject to the tax, and given the extraordinary compounding penalties imposed for non-payment, what happens if, say, Salesforce doesn’t believe it owes tax in Illinois and never reports or remits, and the state later determines that Slack, its business messaging app, is a social media platform?

The new law is silent on all these questions, and many others besides. What it’s not silent about: prohibiting companies from varying the price to account for the new tax, which raises important legal questions. Indeed, the tax implicates more Constitutional clauses than it contains pages of text: it invites challenges under the First Amendment, the Commerce Clause, the Due Process Clause, and the Equal Protection Clause.

Most lawmakers only saw the language creating the new tax when they voted on the budget early on the morning of June 1st (if then). Budget writers clearly didn’t spend much time developing the proposal. But there’s no question that the state will spend a lot of time with the text in the coming months and years, as this deeply flawed tax is extensively litigated in court.

You can read my new analysis here.

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We discussed the growing state income tax divergence and the rise of millionaire’s taxes; why and under what circumstances people move because of taxes (I argue for the importance of the second-order effects, as people move for better jobs that are increasingly created in lower-tax states, while Betsey sees tax-motivated moves as more of a retiree issue); striking the right balance between a competitive tax code and the amenities people want; and new frontiers in state taxation, like wealth taxes.

You can catch the episode on Spotify.

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But people like Zuckerberg didn’t get where they are by making major decisions of this magnitude because no one on their team bothered to read the fine print. And in fact, there’s an entirely sensible explanation for his behavior, and that of many other California billionaires in the process of severing ties with the state. They have good reason to believe that the initiative’s unusual snapshot residency rule won’t pass legal muster, and that a mid-year move could spare them from some or all liability under the wealth tax.

My new Tax Foundation paper explores the legal arguments at play, with a particular focus on two key constitutional objections:

1. The initiative retroactively establishes a wholly new tax rather than simply modifying an existing one.

2. The tax is not apportioned for those who depart the state and even extends to post-departure wealth accumulation. The former challenges the validity of the January 1 residency date, while the latter challenges the December 31 valuation date and continued taxation after a taxpayer’s mid-year departure.

Saez and Zucman claim that the initiative’s choice of residency date, chosen “precisely to prevent such behavioral responses,” renders it “difficult if not impossible for billionaires to leave the state, i.e., meet of [sic] the stringent rules that the California tax law uses to determine that a taxpayer has effectively left the state.” It is easy to imagine this as an exhibit in future litigation over the tax’s retroactive provisions.

Tax changes can be retroactive; this is well-established. But retroactivity comes with guardrails. My new paper explains why the California wealth tax initiative is so vulnerable to legal challenge, and why mid-year movers have good reasons to depart.

Read the Paper

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There’s a pervasive narrative, however, that Klein, Thompson, and other Abundance-adjacent authors are somehow foes of progressivism: that their identification with the left is only skin deep. This is not a thesis that could survive actually reading their books.

In a departure from this Substack’s normal focus on state and local tax policy (mostly because I’ve been too busy to produce any new content), I am exercising a point of personal privilege in sharing an essay I wrote shortly after Abundance’s release, critiquing the authors’ confidence in bureaucracy and comfort with central planning. Even though the books have been out for quite some time, the critique still seems timely, because debates about the purpose and direction of the Abundance Movement, and about the degree to which their vision requires intensive governmental coordination, remain quite active.

I hasten to emphasize that this critique does not capture my full views of any of these books, which I regard as a valuable contribution to the policy debate, and which have the potential to yield meaningful policy improvements. But it is a critique of what I regard as a misplaced trust, and a rejoinder to those who have concluded that Klein et al. are merely agents of the political right.

I recognize the risks of using this Substack to opine on topics outside my area, and I’ll return to tax policy next time. For now, thank you for your indulgence.

Abundance: A Liberalism that Builds Houses — And Government

The only time the phrase “rising tide” appears in Abundance, the eponymous 2025 book behind a growing center-left movement, it refers to the fear that a “rising tide of bureaucracy could drown the work of science.” But while Ezra Klein and Derek Thompson never resort to the now-familiar aphorism that a rising tide lifts all boats, it neatly describes their core intuition: that progressive ambitions can never be realized through the better redistribution of existing resources, and that only supply-side progressivism can produce the abundance from which those aims can be satisfied. The insight is not new, or if so, it is only the newness of the New Deal, with its relentless pursuit of more: more housing, more energy (cleaner this time), more health care, and more technological progress.

But whereas today, a “rising tide” conjures up Ronald Reagan’s optimistic hopes for supply-side conservatism, with market-driven economic growth creating better conditions for all, the authors of Abundance would have more affinity for the way the phrase was first employed by John F. Kennedy in defense of large-scale public works projects like Arkansas’ Greers Ferry Dam, with the government’s expenditures constituting “an investment by the people of the United States in the United States.”

This is the confident, empowered liberalism — a “liberalism that builds” — to which Klein and Thompson beckon us to return. It is the unfettered “Hamiltonian” liberalism defended by Marc Dunkelman in another 2025 book, Why Nothing Works, as against a mincing Jeffersonian liberalism that, fearful of concentrated power in any form, has shackled government with endless reviews and a proliferation of democratic vetoes. Theirs is the progressivism of the Works Progress Administration, the Grand Coulee Dam, and the Tennessee Valley Authority — and, potentially, a progressivism sufficiently single-minded to allow the Tennessee Valley Authority’s expansive economic development plans take precedence over the snail darter.

The upshot of this is that Klein, Thompson, and their abundance-minded fellow travelers, while caustic in their critique of many specific regulations, are far from champions of deregulation and market forces. While they acknowledge the essential role of private enterprise in delivering on housing, energy, and other supply-constrained sectors, and favor a rollback of regulations in these sectors that make it harder to deliver on key progressive outcomes, they have little confidence in the private sector’s broader ability to deliver on their progressive supply-side vision. The problem with regulations, by their reckoning, is not that they represent a government intrusion in the market, but rather that they represent a democratic intrusion on the power of a strong central government to act in service of key national priorities.

To be sure, Klein and Thompson, Dunkelman, and Stuck author Yoni Appelbaum (whose book also dovetails with the progressive abundance agenda) all want to avoid the extreme embodied in the villainous figure of Robert Moses. We can be sure of this because they all say so multiple times. What is less certain is how they would guard against such imperious heavy-handedness beyond a curiously placed trust in the same bureaucrats responsible for today’s sclerotic interest group progressivism, who are frequently more than willing to subordinate their own broader ideals to the many competing demands of modern progressivism. Klein and Thompson pin their hopes on the notion that, unburdened by administrative reviews and democratic vetoes, government can act boldly in service of the public interest rather than schizophrenically in service to the bureaucracy’s many clients.

As if government was notable for its purity of both vision and execution until the adoption of the Administrative Procedure Act, and bureaucrats never pursued narrow sectional objectives until Nader’s Raiders struck a blow to their power.

Abundance consists of five chapters that read like headings on a campaign platform (which is basically the point): Grow, Build, Govern, Invent, and Deploy. Progressive critics of the abundance agenda get bogged down on “grow,” “build,” and “govern,” which repudiate not only far left degrowtherism but also the rise of a citizen voice progressivism with more expertise in constructing hurdles than housing. They decry “procedure-fetish liberalism” that throttles innovation and growth, highlighting labyrinthine permitting and environmental review processes that stand in the way of housing construction, mass transit, and clean energy projects. They question systems under which government-funded scientists spend more time on paperwork than on research, and which can treat regulatory compliance as a higher ambition than delivering on the intended project. They identify scarcity as the enemy, and think that redistribution will be easier (and somewhat less necessary) if greater abundance is achieved.

In this, they find common cause with the center-right, which regards the book’s (and movement’s) diagnosis of government sclerosis as a belated dawning of the obvious. It is possible, at this point, to regard the book’s occasional jabs at Ronald Reagan, its chastisement of right-wing climate change denialism, and its half-hearted efforts to lay some of the blame for governmental dysfunction at the feet of limited government conservatives, as little more than signaling to assure progressive readers that the authors share their values, despite adopting some of the language of conservative critics.

By the time Klein and Thompson begin championing “focused state capacity,” however, it’s conservatives who are squirming. This isn’t “state capacity libertarianism.” And it isn’t just the notion that if the government is going to do something, it might as well do it well. Instead, this is a full-throated, if never fully defended, paean for the administrative state writ large.

In their telling, Bill Clinton emerges as a sort of villain, playing an inverted Eisenhower to Reagan’s mirror FDR, slamming the door on the era of big government when he should have been reenergizing it. The authors portray centralized authority and collective action as solutions to problems created by a devolution of authority to markets, citizens, and litigation.

They want to eliminate bottlenecks, some of which are caused by government — occasionally acknowledged as such, as with NEPA, and other times ellided, as when the authors treat Operation Warp Speed’s bureaucratic fast-tracking as government in action rather than a lifting of typical governmental roadblocks — but don’t regard government agenda-setting as possessing the likelihood of creating new bottlenecks, for instance by committing the country to a specific approach to achieving clean energy goals and thus foreclosing new and better options that might emerge from market innovation.

They dismiss concerns about governments picking winners and losers by noting that government has picked its share of winners, ARPAnet, the penicillin rollout, and the space program among them. Yet in this they seem to have forgotten the many times that governments have backed losers, some documented earlier in the book, or convinced themselves that these malinvestments wouldn’t happen if governmental authority were strengthened. (What would the internet look like today if it had remained a government-run project, and had Clinton not decided to leave it almost entirely free of regulation and oversight?)

They make a case for curtailing regulatory comment periods, limiting the ability to litigate government decisions, strengthening eminent domain powers, and simplifying procurement processes, all of which they view as impediments to decisive action.

It’s true, of course, that government procurement processes are often wildly inefficient, partly due to weak incentive structures, partly due to vendor preference programs and set-asides, and partly because the one-size-fits-all approach designed to root out graft and price insensitivity is itself insensitive to time and financial constraints imposed by putting everything out to bid. In the business world, private actors driven by the profit motive can enter into contracts more quickly, relying on past relationships or weighing the costs and benefits of running a small procurement through a competitive bidding process.

But in government, what is the alternative? Businesses have the profit motive. Absent clear rules about procurement, what prevents bureaucrats — from laziness, indifference, inattentiveness, bias, or graft — from awarding contracts at inflated prices for substandard work?

A market-oriented solution might be to contract at a higher level, awarding contracts for fulfilling large commitments (which can be monitored by government employees) while letting the primary vendor handle sub-vendor arrangements. The Abundance solution, seemingly, is to loosen the controls on government contracting and hope for the best.

The authors praise Biden for his embrace of abundance politics in the infrastructure bill and the Inflation Reduction Act, while acknowledging that subsidies for computer chips and funding for clean energy projects were larded with some of the everything-bagel liberalism they otherwise deplore, with, presumably, a real chance of failing as badly as some of the Obama administration’s never-quite-shovel-ready projects. But one supposes it’s only because the administration was too weak, and that if it weren’t for citizen vetoes (or, perhaps, Congress?), the whole project would have been carried out by some hard-charging latter-day Harry Hopkins.

Yet policy outcomes are biased toward small privileged groups in more centralized regimes just as much as under more democratic ones. Abundance liberals worry about democratic veto points, like the ability of local NIMBYs to block a housing development or snarl a rail project in years of litigation, but are much less chary of the risk of rent-seeking and regulatory capture in a less transparent or democratic system. Log-rolling and minority vetoes exist in empowered governments just as in more accountable ones. The Calculus of Consent was written before Nader or NEPA, and interest-group liberalism, under which policy arenas are parceled out to clienteles, was one of the evils that the Jeffersonian mode was intended to uproot.

(At Alex Tabarrok’s urging, Ezra Klein read Mancur Olson’s The Rise and Decline of Nations. Had he followed it up with The Logic of Collective Action, perhaps Abundance would have been a better book.)

The Abundance authors (and with them, large swaths of the Abundance movement) set out to solve the problems of contemporary progressivism by reverting to the older progressivism that it supplanted. In doing so, they rely too much not only on the good intentions but the good judgment of those in power. They discount the importance of the price discovery mechanism, seemingly unimpressed by the way in which prices embed valuable information. They seem unfazed by the possibility that government planning will be too lumbering or will choose the wrong channels of investment. They laud the power of China’s authoritarian government to get things done, but fail to note how much of what China builds goes to waste, or how poor China’s return on industrial subsidies has been in recent years. They even cheekily paraphrase Karl Marx to the effect that the profit motive punishes innovation.

Klein and Thompson lean into Dunkelman’s call for progressivism to embrace its Hamiltonian ethos, but both they and Dunkelman fail to grapple with the challenge of balancing the risks of corruption, administrative fiat, regulatory capture, and inflexible top-down solutions against their understandable desire to eliminate endless review, lengthy contracting and approval processes, and stakeholder vetoes. In Dunkelman’s thinking, Ralph Nader, Jane Jacobs, and Jimmy Carter ushered in a Jeffersonian liberalism that was so skeptical of size and power that it undercut its own ability to get anything done. That may well be. But the Abundance solution, perhaps surprisingly for a book so aware of the ways that ill-conceived government policies have blocked housing and energy projects that private investors were willing to deliver, places considerable confidence in central planning.

Perhaps Jane Jacobs’ form of localism cannot lead to abundance. (Jacobs herself possessed something of the dualism that bedevils Klein and Thompson’s analysis: as Appelbaum notes in Stuck, she helped stem the tide of command-and-control urban renewal in part by highlighting the vitality of organic mixed-used communities, but then dedicated her attention to using zoning to freeze the “character” of these previously vibrant communities just as they were when she discovered them.) And while Klein is on a journey of discovery of thinkers long known and appreciated by the right, it’s no surprise that he’s not quite ready to embrace, say, F.A. Hayek or even Eleanor Ostrom. But perhaps he could lend an ear to a fellow progressive, James C. Scott, who has dedicated his career to documenting how empowered governments, in the name of legibility to themselves, bulldoze over organic solutions with all the confidence of a Robert Moses.

When it takes longer to repair an escalator at D.C. Metro stations than to construct the Empire State Building in its entirety, blame can’t be placed on NEPA, historic designations, or litigation, as abused as each of those things might be. That’s just government operating at the speed of government. And when governments announce new affordable housing initiatives but pair them with environmental justice plans, union labor and prevailing wage requirements, minority hiring incentives, and developer proffers, that’s not the fault of any existing law either, nor is it likely to become less frequent if bureaucrats were granted greater autonomy.

The authors rightly believe that decline is a policy choice, and, conversely, so is building. Yet they do not seem entirely aware of the impetus for past degrowth policies. Schumpeter famously saw socialism following capitalism not as a dialectical synthesis but due to a lethargy produced by capitalism’s material prosperity: society embraces the belief that abundance had been attained, and it remains only to parcel it out. This was essentially J.K. Galbraith’s thesis, too, in The Affluent Society: that a sufficiently rich society can and should care less about stoking the engines of greater prosperity, and more about what is done with it. The result of that mindset, of course, is the sluggish, low-growth society Abundance liberals want to reinvigorate.

Abundance isn’t The Affluent Society. Galbraith believed that scarcity had been vanquished, at least within tolerable margins, and that redistribution was paramount. Klein, Thompson, and the rest of the Abundance set believe that artificial scarcity has reared its head, and that beating it back will solve more problems than focusing primarily on redistribution. But with their faith in government-led investments and a certain form of industrial policy as the drivers of the desired growth in key sectors, they have only half the picture.

Ultimately, the book, and some parts of the movement it has spawned, evinces very little confidence that markets can deliver on abundance. The authors’ interlocutors on the right, meanwhile, would doubt that political actors could make good on promises of abundance without unleashing markets. In The Conservative Futurist, published a year prior to Abundance, James Pethokoukis highlighted the research of economists John Dawson and John Seater, who estimate that changes of regulation beginning in the 1970s reduced total factor productivity growth by as much as 2 percent per year, causing the slowdown that Klein and Thompson wish to reverse. Undoubtedly the Abundance authors would find much to agree with here, but whereas Dawson and Seater (and Pethokoukis) envision the market filling the void after regulations are rolled back, the Abundance take is that, in many sectors, government would guide the investments it previously regulated. The change would be in power and mindset, with bureaucrats now focused on building rather than blocking.

Klein and Thompson demonstrate an almost naive trust that civil servants, insulated from external pressure, will somehow be more responsive to what people really demand than markets would be, and that top-down control can work provided the Jeffersonian constraints are removed and Hamiltonians are installed in positions of authority. They recognize that the market will provide houses if the government gets out of the way, but seem skeptical that government regulation or resource allocation is an impediment elsewhere, instead favoring an enhanced role for government intervention.

If Abundance convinces progressive lawmakers to reform NEPA, rein in historic designations, and embrace upzoning, it will have done this country a great service. But as the book and the movement expand into outlining a grand vision, the prescription is nostalgic: confronting the “crisis of the old order” with something akin to a new model army of New Dealers.

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Franklin’s words are not of Revolutionary War vintage, but rather much earlier, from 1755, as part of the Pennsylvania Assembly’s Reply to Deputy Governor Robert Hunter Morris on a matter of financing.

It had been a bad year for the Province of Pennsylvania. A year prior, in Fayette County, a young colonel by the name of Washington, dispatched by Governor Dinwiddie of Virginia, had committed a blunder that arguably transformed isolated skirmishes into what would become a very real war. And not just any war, but a war that would be fought on five continents.

The Dinwiddie Expedition was responding to a series of raids by several Native American tribes in the turbulent frontier of the Ohio Valley — tribes once loyal to the British, but clearly acting according to French incitement. Washington established a stockade he called Fort Necessity, but soon advanced beyond it in an ill-conceived assault from which he quickly retreated.

Responding to Washington’s parry, the French converged on Fort Necessity, and in the melee that followed, the brother of the French commander, approaching the fort under a white flag, was captured by Washington’s troops. What ensued is shrouded in mystery. Most primary sources claim, and the French believed, that Washington ordered the French officer’s illegal capture and acceded to his subsequent murder in captivity to appease a Native American ally (the “Half King”) with a grudge. Washington himself contended that he distrusted the man’s intentions, hence his capture, but that he did not sanction the murder. Whatever the case, the effect of the Jumonville Incident was almost immediate: France and Great Britain were at war, and Western Pennsylvania was the first theater of battle.

The British sent General Braddock to lead an expedition against the French, an expedition that ended badly, with Braddock dead, his aide (again, a young Washington) fleeing, and the French taking the foundation of a British fort and turning it into their own Fort Duquesne. By now, the Delaware and Shawnee Indians were firmly in the French camp, conducting frequent raids on British settlements in the Alleghenies. The Crown was alarmed. So was Pennsylvania’s Deputy Governor, Morris.

Pennsylvania was a proprietary colony, essentially feudal in nature, and two heirs of William Penn, Thomas and Richard, were its proprietors at the time. The head of government was the Deputy Governor, who legally served the interests of the proprietors, not the people.

As a proprietary colony, the Province of Pennsylvania operated under unique rules. The vast majority of land outside Philadelphia was itself proprietary, held in fief by a few major landowners. Since most of the land was forested and unproductive, the charter afforded an exemption from any taxation of this proprietary property, one the Assembly could not override.

This was not the only way the Assembly’s hands were tied: the Deputy Governor frequently refused his assent to bills on the grounds that they violated the terms of the charter or the procedures or interests of the proprietors. Few, if any, in the legislature truly knew what those “procedures” were, or whether they were being applied fairly. The Assembly’s powers were highly circumscribed, and most members accepted their limited responsibilities.

But with a military crisis unfolding on the colony’s western frontier, the Penns and Deputy Governor Morris needed the Assembly to approve defensive expenditures. And just as the British Parliament won many of its supposedly “ancient liberties” by knowing when to grant, and when to withhold, a subsidy, the Assembly, which chiefly represented people far removed from the frontier, recognized that it finally held a valuable bargaining chip.

Complicating matters were the Quakers, well represented in the Assembly, most of whom refused to raise any monies for the purpose of taking up arms, and who convened an inquiry to determine whether any actions of the colony or crimes of the colonists had instigated the raids. A few, however, under pressure from their peers and constituencies, needed a way to appear to support subsidies for defense, preferably without actually voting them into existence.

This presented an opportunity for those wishing to upend the charter, Franklin chief among them. The Assembly repeatedly voted revenues for the defense of the territories, but exclusively from taxation of the exempt proprietary estates. Repeatedly, the Deputy Governor returned the bills, begging the Assembly to provide him with an alternative revenue, or to authorize the printing of money, to be sunk over the course of four or five years, to cover the costs of raising a militia and constructing and supplying a few forts along the Monongahela and Youghiogheny Rivers.

Eventually, Morris proposed a compromise: if the Assembly would commit to raising the revenue, he would sign a bill petitioning King George II on the question of proprietary estates, and should the King authorize their taxation, the Penns and Morris would yield.

This was not sufficient for many in the Assembly, confident that the King would refuse, their bargaining chip spent. They were not interested in temporary expedients and wished to force the sovereign’s hand. The Assembly countered the Deputy Governor’s proposal in a response written by Franklin, proposing that the bill provide for the taxation of the estates, but that the actual levy of the taxes be stayed pending the King’s decree. Arguing for the liberty of the Assembly, and of the government of Pennsylvania separate from its feudal proprietors, Franklin wrote in part:

“In fine, we have the most sensible Concern for the poor distressed Inhabitants of the Frontiers. We have taken every Step in our Power, consistent with the just Rights of the Freemen of Pennsylvania, for their Relief, and we have Reason to believe, that in the Midst of their Distresses they themselves do not wish us to go farther. Those who would give up essential Liberty, to purchase a little temporary Safety, deserve neither Liberty nor Safety...”

In the buildup to a later conflict, American colonists would insist on the principle of “no taxation without representation.” Here, Franklin stood on the idea that no government could be truly representative if the taxing power (whether in exercise or forbearance) lay wholly elsewhere. Taxing authority, he believed, belonged with the people and their representatives, and it was just as repugnant to the emerging principles of representative government for the Assembly to be thwarted in the exercise of its taxing powers as it was for an unelected government to levy taxes without its consent.

The political battle ended in stalemate. The Assembly’s petition was rejected, and the proprietors failed to persuade the Assembly to commit funds.

Shortly after, a militia was established, but with no powers of conscription, fighting under no articles of war, and funded by voluntary subscription. The war (technically the Fourth French and Indian War, though the one typically indicated by that name) would rage until 1763, and the Seven Years’ War of which it proved the first part would also come to encompass the Third Carnatic War, the Pomeranian War, and the Third Silesian War, taking the conflict from its North American origins to fields of battle in Europe, Asia, Africa, and South America. And the liberty Franklin refused to surrender — a liberty the Assembly never properly possessed, nor successfully exercised — would not be realized until the start of a later conflict, when, with the commencement of the American Revolution, Pennsylvania was made a Commonwealth, the feudal lands were broken up, and the Penn family, represented by Chief Proprietor John Penn of Stoke and Lieutenant Governor John Penn, Jr., was deposed.

Liberty it was, and purchased at the cost of more than a little safety.

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Forty-six years after voters approved Proposition 2½, the measure is still delivering for Bay Staters. That’s the subject of my latest paper, published with the Fiscal Alliance Foundation, measuring the impact of Massachusetts’ levy limits over the past two decades.

Proposition 2½ actually combines a rate limit and a levy limit. Today, the levy limit is what matters, but in the early days, both were significant. In 1982, just as the initiative was taking effect, Massachusetts’ effective property tax rate was 3.64%, and the rate on residential property was even higher, at 3.72%. That is not a typo and it is not a mistake—well, a policy mistake, certainly, but not a statistical error. Today, the average statewide effective rate across all property classes is 1.19% and effective rates on residential property have declined to 1.04%, which, though still higher than the national average, is undeniably a marked improvement.

My new paper explains how Proposition 2½ works, describes how it differs from a strict levy limit (on this, see also my previous SALT Road post on different types of levy limits), and documents taxpayers’ savings under the measure. The chart below shows actual tax levies for ten jurisdictions (plus a statewide average) on the median-value home, along with what the tax burden would be without Proposition 2½ and what it would be under a strict 2.5% levy limit.

As I conclude in the paper, Proposition 2½ has provided Massachusetts homeowners with decades of meaningful relief. Itis not the aggressive restraint on cities and towns that opponents claim it to be; even with its protections, Massachusetts’ property tax burdens remain well above national averages. But it is what stands between homeowners and much higher property taxes.

You can read the full analysis here, on the Fiscal Alliance Foundation’s website.

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The City’s luxury condos have their assessed values diluted by a pool of comparable properties that includes rent-stabilized units with a much lower market value. Rent control and rent stabilization thus not only reduces the stock of housing in New York and undercuts its quality, but it also reduces assessed values of similar properties not subject to rent control.

On the campaign trail, Mayor Zohran Mamdani called for reforms to improve property tax valuations, even as he champions the housing policies that have created the valuation problem (among other, more consequential, policy outcomes). But the only policy proposal to emerge thus far doesn’t involve correcting the calculation of the tax base. Instead, it relies on a dramatic, economically inefficient, and poorly-targeted rate increase on a small subset of that base: second homes.

The proposed pied-à-terre tax falls on the sort of residents most likely to change their behavior in response to higher tax burdens, it reduces the attractiveness of new construction, and it sends a signal that New York is not interested in getting its fiscal house in order.

Ken Girardin (a fellow at the Manhattan Institute) and I have a short piece in City Journal evaluating the tax proposal, which is only the latest instance in the long and regrettable history of policymakers identifying a legitimate policy deficiency and addressing it, not with real reform, but with a poorly-designed patch that creates more problems than it solves.

You can read our piece here.

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I estimate that ongoing state tax revenue losses from billionaire departures will run between $3.53 billion and $4.49 billion per year, mostly from forgone individual income tax collections, with smaller effects from sales taxes and economic spillovers. Under standard discount rate assumptions, the net present value of these recurring losses outstrips the one-time revenue the initiative’s drafters project from the wealth tax itself, and runs to several multiples of the revenue estimated by a competing analysis.

You can read the full paper here. Downloads of the paper are appreciated—mostly because I think (hope) it’s worth reading, but also because downloads improve the paper’s visibility for others looking for information on the California wealth tax.

My calculations are specific to California, but a similar effect should be anticipated in any other state that contemplates a wealth tax.

There’s a robust debate about whether billionaires will be able to avoid some or all of the wealth tax by relocating out of state. This is true both for departures before the January 1, 2026 “snapshot” residency date, since the California Franchise Tax Board might conclude that domicile has not shifted based on a totality of factors, and also for departures after that date, as courts could very well revise or strike the residency date in the initiative. In a forthcoming Tax Foundation analysis, I plan to explore the many unresolved questions about California residency for wealth tax purposes.

For ongoing liability under other taxes, however, none of this matters. It only matters that billionaires leave, regardless of whether the move is successful in avoiding wealth tax liability. (Of course, they’re leaving because they justifiably believe that this may eliminate their liability.) Many are unlikely to come back—especially if they believe future wealth taxation is on the horizon—and at some point, they will certainly be domiciled elsewhere, depriving California of tax revenue.

That’s what my analysis explores.

In my paper, I divide California’s 212 billionaires into four groups based on their primary source of wealth: public founder equity, private operating businesses, financial fund management, and diversified holdings. These groups differ on three relevant dimensions: mobility, California-source income retention after departure, and employment and investment spillovers from their departures.

Public company founders are highly mobile and retain almost no California-source income after relocating, but their departures produce little employment spillover, since a publicly traded company will not follow its founder. Private operating business owners are less mobile but generate much larger economic spillovers when they do leave, since their employees, suppliers, and operations sometimes move with them. Fund managers fall in between, as do those with diversified holdings.

Notably, with how heavily concentrated billionaire wealth is at the top, departures by those the most motivated to leave can have an outsized impact.

Most of the empirical literature on wealth taxation comes from Europe. This evidence is valuable but will almost certainly understate behavioral responses at the U.S. state level. Crossing state lines is far easier than changing countries, so migration elasticities ought to be considerably higher. Additionally, European wealth taxes also tend to exempt business assets, meaning that the measured response is substantially that of successful small business owners and professionals rather than the founders of large publicly traded companies. My analysis thus considers a range of migration elasticities, regarding the European experience as the floor.

I invite you to read the full paper.

Separately, I also have an op-ed on the philanthropic implications of billionaire outmigration and a Tax Foundation piece explaining why valuation by founders’ voting interests remains a valid concern.

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In tax year 2025, federal, state, and local tax collections totaled $7.58 trillion, which is $22,182 per capita and $56,247 per household. Twenty-nine percent of U.S. personal income goes to taxes, meaning that, collectively, it takes Americans 106 days to earn enough to remit taxes at all levels. Coincidentally, that date is just around the corner, too: April 16th, one day after Tax Day.

Let’s break that down:

• Individual income taxes raised $3.34 trillion in 2025: $2.74 trillion at the federal level and $592 billion at the state and local level. That’s just under 47 days’ worth of personal income, taking us to February 16th.

• Federal social insurance and retirement taxes come next at $1.77 trillion. That’s a little under 25 days’ worth, which brings us to March 12th.

• Property taxes, which are almost exclusively local (but include taxes on businesses’ machinery and equipment, not just real property), brought in $827 billion (11.5 days), and now we’re to March 24th.

• Sales, excise, and miscellaneous taxes generated $785 billion, with about $600 billion of that coming from state and local sales taxes, adding 11 days and bringing us to April 4th.

• Corporate income taxes, at $603 billion ($424 billion at the federal level), add another 8.5 days and take us through April 12th.

• Tariffs (customs duties) generated $264 billion, up from $79 billion in 2024, adding a little under 4 days and taking us through April 16th, the day when the country will have collectively earned enough to pay all of 2025’s federal, state, and local taxes.

These charts are embeddable for sharing in blog posts or in other online content:

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• They allow lawmakers to meaningfully commit to future rate relief, providing greater predictability for businesses and individuals engaged in economic decision-making.

• They statutorily prioritize rate relief, making tax cuts, rather than spending growth, the default response to greater fiscal capacity.

• They allow rate reductions to be phased in responsibly, making further reductions contingent on revenues exceeding established benchmarks and giving legislators time to evaluate the sustainability of the ultimate target rate, rather than adopting a large rate cut one fell swoop.

But the appeal and logic of tax triggers can also incentivize lawmakers to wrap largely revenue-insensitive phased tax reductions in “trigger” language, presenting them as revenue-dependent when they really aren’t. Sometimes states can afford a tax cut without triggers, and sometimes lawmakers may genuinely want to cut the size of government along with the tax reduction. But if that’s the case, lawmakers need to be honest with the public, and just as importantly, with themselves. Just because a tax trigger has been created doesn’t mean it’s effective.

Some triggers are ineffective because lawmakers were overly restrictive when designing its conditions, meaning that tax cuts don’t actually trigger even in periods of sustained revenue growth. Others are the opposite: superficially, they seem to make future rate reductions conditional, but in practice, they just act as stepped reductions, or trigger at inopportune times.

This is often inadvertent, as tax trigger design can be confusing. But if policymakers adopt an approach that purports to only reduce rates subject to revenue availability, and then a reduction gets triggered during an economic downturn, that’s bad for everyone: for agencies facing unexpected spending cuts, for lawmakers who might have to vote for a tax increase, and for an electorate that believes, with justification, that it was promised something else.

This is an argument for designing tax triggers correctly, and also for calling out triggers that aren’t working as intended. To that end, I have a new piece on North Carolina’s current revenue triggers, demonstrating how they fail to achieve their objectives, with the potential to trigger rate reductions even in the midst of a recession.

Lawmakers who believe in the pro-growth tax reforms North Carolina has adopted over the past 13 years, which include significant income tax cuts, should want to preserve those gains by guarding against an accidental misstep that could undermine everything they have accomplished.

You can read the piece here.

(I do offer one caveat: I wrote this piece several months ago, but it was only published yesterday, a few days after the release of a revised state revenue forecast. The new numbers wouldn’t materially change the analysis. Had the piece been written using the new data, every argument would remain and the scenarios outlined would be quite similar. But I did want to acknowledge that the piece does not use the latest data, something I may try to address in an update.)

If lawmakers use triggers, they should genuinely be triggers. And if policymakers want to ensure that the progress they make on tax reform and tax relief remains in place, they should want to guard against an overextension that could sour their colleagues on tax reform as a whole.

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The reasons for rising gasoline prices aren’t a secret. The world is experiencing a supply shock. Tinkering with gas taxes won’t reopen the Strait of Hormuz, and it won’t deliver anything close to dollar-for-dollar savings to motorists.

Crude oil supply has been disrupted, and gasoline has become scarcer relative to demand. Prices have risen to ration the available supply and bring the market into equilibrium. The quantity of gasoline demanded at a lower price would outstrip demand.

We know what happens when policymakers set price ceilings during an energy crisis, and thankfully, most lawmakers seem to have learned the lessons of the 1970s. No one wants to revisit that era’s gas shortages.

Suspending a gas tax isn’t an attempt to cap prices, but instead an effort to reduce a price input. But while this lowers one component of the retail price, it does nothing to reduce the underlying scarcity. If the market-clearing price is higher than it was before the conflict with Iran—and it clearly is—then some of the tax reduction will be offset by higher pre-tax prices.

Recent state-level price changes provide evidence of this. The average cost of fuel varies across states for many reasons, including gas taxes, environmental regulations, transportation costs, labor and operating costs, and market competition. During a supply shock, we would expect to see relative price differences decline, with lower-price states experiencing larger percentage increases in price at the pump than states that already had high prices. Market forces drive prices everywhere toward a new equilibrium, regardless of their starting point. Differences will remain, but we’d expect them to be somewhat smaller.

And they are. Using AAA’s daily average gas price data for February 6th (pre-supply shock) and March 16th, I compared initial gas prices with the percentage increase in prices post-supply shock. The effect is robust and in line with expectations.

To get technical for a moment, the coefficient is -0.074, meaning that for every $1 that a state’s gasoline price was above the national average on February 6th, the post-shock price increase was 7.4 percentage points smaller. States below the national average experienced larger percentage increases.

We can measure this convergence in other ways as well. Post-supply shock, relative price gaps shrank. The coefficient of variation fell from 15.3 to 13.2 percent, meaning that interstate price differences narrowed relative to the national price level. This is consistent with the regression results.

Throwing a gas tax holiday into the mix—whether federally or at the state level—won’t yield dollar-for-dollar savings, because marginal price changes are being driven by increased scarcity.

That doesn’t mean there wouldn’t be any savings. But during a supply disruption, the pass-through won’t be anywhere near complete. If the lower (or eliminated) tax induces additional consumption, the increased demand will undercut the intended relief, absorbing some of it into industry profits rather than passing it along to drivers. That’s not because oil producers, refiners, or service stations are being greedy; it’s just the intersection of supply and demand curves.

Prices are an allocation mechanism. During a supply shortage, efforts to hold down prices without addressing supply are unlikely to work as well as hoped. Motorists won’t get anywhere near as much relief as they expect, while transportation funds are deprived of revenue for road maintenance. It’s no surprise that gas tax holidays are proposed during periods of greater oil scarcity, but the problem that prompts the policy fix is also the reason the policy fix will underdeliver.

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Holmes’s line about taxes as the price of civilization is often quoted, but many are unaware of the context, from a case that hinged on whether an imposition was a tax or a penalty. “Taxes are what we pay for civilized society … A penalty, on the other hand, is intended altogether to prevent the thing punished.”1

All policy involves tradeoffs, and all things being equal, any tax will tend to produce less of whatever it is levied upon. (“Any tax is a discouragement,” as Justice Holmes wrote in another case.2) For most major taxes, however, this is an unavoidable consequence, not the policy objective. Or at least, that’s largely been true historically.

The left appears increasingly divided on the primary purpose of progressive taxation—whether redistribution is primarily about floors or ceilings.

For one camp, which has dominated real-world progressive policymaking, the basic logic of a progressive, redistributive system is that there is a compelling need for social insurance, housing, education, and health care policies that ensure a sufficient standard of living for all, and that wealthier households have a greater ability to pay for these programs and can thus be expected to contribute more. In this view, wealth is not bad in itself (indeed, it’s necessary for the system to work), it just creates additional obligations to support the welfare of those less well-off.

For another camp, wealth itself is a problem to be solved. New taxes are proposed to address income inequality, with less focus on raising the absolute position of the least fortunate and more focus on closing the relative gap. Taxes are conceived less as the price we all pay for government—even if some are expected to pay much more than others—and more as a penalty on something bad (particularly high incomes or net worth). This doesn’t mean, of course, that those in the latter camp don’t care about the programs that additional revenue funds, but the difference in focus matters.

In one sense, this divide is nothing new. It’s Rawls vs. Dworkin. It’s the difference between instrumental and intrinsic egalitarianism. These debates about equality, egalitarianism, and distributive justice can be found in any textbook. But until recently, a case can be made that most left-leaning lawmakers saw progressive taxes as a means rather than an end: they were, in their view, the fairest way to pay for programs they supported, many of which benefitted lower-income households. They were not intended as punishment of wealth and did not suggest disapprobation.

By contrast, consider the proposed California wealth tax, which is to be imposed on “the activity of sustaining excessive accumulations of wealth” (emphasis mine). Or look at Washington, where lawmakers are considering an income tax that only taxes millionaires, or proposals at the federal level that would wipe out income tax liability for many households (eliminated under $92,000 for married couples under Sen. Van Hollen’s proposal, and under $75,000 with Sen. Booker’s), funded by higher rates on high earners.

Politicians on the right are playing the same game, whether it’s “no tax on tips” or state-level proposals to eliminate income taxes for the majority of households. There’s an acknowledgment embedded in each of these proposals, sometimes implicitly and sometimes explicitly, that taxes are viewed as penalties, and that “deserving” people shouldn’t pay taxes.

It’s hard to imagine how this is supposed to work in the long run. There are economic objections: extraordinarily high rates on marginal income and capital accumulation are uniquely harmful. There are stability objections: over-indexing on high-net-worth individuals introduces greater volatility (capital gains realizations are far more volatile than wage income, for instance), which is poorly calibrated to cover recurring, essential expenditures. But there’s also a policy incoherence that those on both the left and right may eventually rue.

For those on the right, pursuing policies that exempt many voters from formerly broad-based taxes will make it harder to keep rates on remaining taxpayers in check. It’s surprising that more conservatives aren’t wary of this, and perhaps less surprising that many progressives are okay with it.

But for the left, convincing voters that middle-class families shouldn’t pay taxes is playing with fire. There’s no realistic level of tax on the wealthiest households that can fund their preferred size of government—or indeed our current size of government—for very long if taxes are reimagined as a penalty on the rich. That’s especially true if the actual stated goal of some (not all) of these proposals is to curb “extreme” or “excess” wealth. The traditional progressive focus on wealthy taxpayers disproportionately funding government is premised on the idea that we will continue to have—and be delighted to have—wealthy taxpayers.

At the risk of oversimplification, the Scandinavian model of progressivity involves broad-based taxes with highly progressive expenditures, while the American model accomplishes more redistribution through taxes themselves, with much more progressive taxes but somewhat less progressive spending.

A Tax Foundation analysis found that the bottom quintile receives $6.17 in transfers per dollar paid in federal, state, and local taxes, while the top quintile receives $0.11. We can also look at this as “effective fiscal incidence,” essentially the net of tax and transfers. If a household paid 10% of their income in taxes but received redistributive transfers worth 30% of their pretax income, they net +20%. The Tax Foundation calculates that the bottom quintile nets +127%, the third quintile nets -2%, and the top quintile nets -31%.

But notably, while this means that about half of households are net beneficiaries under the current tax-and-transfer system, it doesn’t mean that the average household isn’t paying taxes. The Tax Policy Center estimates that the average total federal tax rate for the middle quintile is 7.5%, even though that quintile’s effective individual income tax rate was negative.

In the short run, some progressives might view the adoption of a Van Hollen-style proposal as a victory. Likewise, in the short run, some conservatives might be excited to carve up state income taxes by progressively zeroing out liability for many households. But in the long run, none of this seems sustainable.

Sen. Russell Long, who chaired the Senate Finance Committee for fifteen years, summed up the basic philosophy behind this populist turn for both the left and the right: “Don’t tax you, don’t tax me, tax that fellow behind the tree.” But public finance will be far more precarious if policymakers of all stripes reconceive taxes as penalties and convince the public that taxes are something only other people should pay.

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It is widely acknowledged that those subject to estate taxes take steps to reduce or avoid liability, including relocating to states without an estate tax in the years prior to their death. This, of course, deprives their former state of revenue under income and other taxes for the remainder of their lives, which represents a substantial offset to the revenue generated by the estate tax on those who remain.

While there’s existing literature addressing this question in much more sophisticated ways, one advantage of a Substack is that it provides the opportunity to explore questions through new lenses and to see if anything comes into view, even if the vision is a bit hazy.

We know which states federal estate tax collections come from. We also have details about federal income tax liability by state, broken down by income class. All else being equal, we would expect to see a reasonable state-by-state correspondence between (a) federal income tax liability for households with $1 million or more in adjusted gross income and (b) federal estate tax liability in those states.

We wouldn’t expect the ratios to be completely consistent across states, since the class of million-dollar-a-year earners is not coterminous with the class of people who will eventually owe federal estate taxes. Nevertheless, this is still a decent proxy that allows us to test whether high earners are fleeing to avoid estate taxes in their final years, which would show up in abnormally low ratios of federal estate tax liability to federal income tax liability for high earners in those states.

As you’ll see, this analysis comes with a lot of caveats and shortcomings, some of which could be addressed with a more rigorous study design and some of which are inherent in the data. That’s why I think Substack is the perfect place to explore this: we can look at some suggestive data that gives us directionally meaningful information, while acknowledging a lack of precision.

Even with the limitations, moreover, we get a couple of useful natural experiments: the 2001 Economic Growth Tax Relief and Reconciliation Act, which phased out a federal credit for state-level estate taxes between 2002 and 2006 (it fully offset liability prior to that), and the COVID-19 pandemic, which increased mortality in ways that presumably limited the ability to plan for estate tax avoidance.

An initial glance at the data is highly suggestive: there are consistently higher federal estate tax payments from states without their own estate taxes than we would expect based on federal income tax liability by state, which could be evidence of wealthy residents relocating in their final years to avoid state taxation of their estate.

The Tax Cuts and Jobs Act (TCJA) roughly doubled estate tax exemptions, which explains why—with a lag based on filing dates—estate tax collections fell so dramatically in the later years of this series.

Though not definitive, it is interesting that the lowest ratios between states with and without an estate tax are in 2020 and 2021. Predicting the timing of one’s death is always imprecise, but the pandemic resulted in substantial excess mortality. It took the lives of many people who might not have anticipated being in their final years and would not have been able to plan accordingly. We would therefore expect to see that state-level estate taxes had less of an effect on where people’s estates were taxed in those years—and indeed, that seems to be the case. (It is slightly surprising that this much of the effect shows up in 2020 itself, and other factors could be at play as well.)

There are many complicating factors. Especially in smaller states, the death of one billionaire can skew a single year’s collections dramatically, though we largely solve for this by aggregating state data. For small states where one or two payers are the predominant sources of federal estate tax revenue in a given year, IRS data is sometimes suppressed for privacy reasons, meaning that some states must be excluded from the analysis in certain years (excluding their income and estate tax revenue), which is another shortcoming. This data issue is greater post-TCJA, since the higher exemption means far fewer taxpayers.

Another issue: Delaware and New Jersey repealed estate taxes during the period in question. (New Jersey retained an inheritance tax.) Here, I took the conservative option of classifying them as non-estate tax states in all years subsequent to repeal, though we would expect some lag if people seek leave estate-taxing states several years prior to their passing. (In this instance, Delaware’s data are suppressed in some years anyway, so the issue is primarily about New Jersey.) We might also expect to see that, with the passing of years, states that repeal their estate taxes show a higher federal estate-tax-to-income-tax ratio after repeal, and we do. This is more gratifying than seeing the opposite result, but we can’t be terribly definitive based on a few years’ data, from a notoriously volatile tax, in a single state.

Then there’s a more fundamental question: if we’re measuring late-in-life tax responses, what is the driver: these states’ estate taxes, their overall tax burden, or both? Many of the states with estate taxes also feature above-average individual income taxes, which retirees—no longer attached to a place of work—might move to avoid. Retirees may also land in states without an estate tax for largely unrelated reasons, perhaps seeking sun and golfing more than a particular tax climate.

In a more sophisticated analysis, we could seek to control for these differences. For today’s simple tour through some basic data, I’ll just provide a baseline by comparing the states that currently have an estate tax to those that currently lack one, from both (1) 1997-2000, before any discussion or implementation of the federal reform that eliminated the credit for state estate taxes, and (2) 2015-2018, the four most recent successive years without significant exogenous factors (TCJA or pandemic effects).

Back when every state had a fully offset estate tax, the states that later repealed them had 38.7 percent higher federal estate tax collections as a percentage of federal income tax receipts from the highest-earning households. Now their collections are 70.3 percent higher. Something seems to have changed.

I could add many additional caveats, including the fact that $1 million in AGI in the late 1990s is not the same as $1 million in the late 2010s. If someday I choose to return to these data, I will investigate whether there are ways to firm up the calculations and isolate the effect. For now, I offer the figures as a potentially interesting observation, using this Substack as a scratchpad. Take it for what you will.

Certainly, the findings are in line with expectations.

A 2023 study by Enrico Moretti and Daniel Wilson concluded that 35 percent of local billionaires leave states with an estate tax, and that states lose 69 percent of estate tax revenue to reduced individual income tax collections. Recalculating just using states with individual income taxes, those states lose about 86 percent to reduced income tax collections, to say nothing of losses under other taxes. Some states, they find, actually lose revenue due to the estate tax, chiefly if they have high-rate income taxes.

Much earlier, Jon Bakija and Joel Slemrod explored the broader phenomenon of the rich fleeing high-tax states through the lens of federal estate tax returns. The period they analyzed was before the end of the federal credit, and with an eye toward that new reality. They calculated that if people moved five years before death in response to state estate taxes, the total revenue loss to the state would be 1.73 times as large as the revenue loss from the estate tax alone.

Both these papers offer far more scholarly insights into the question I sought to address here. But sometimes a simple look at the data can be instructive, too, despite the many limitations.

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The answer matters as policymakers evaluate measures for property tax relief, but it’s not straightforward. Tax collections have risen dramatically in recent years, but this did not happen in a vacuum: the population rose, total floor space increased, and people increasingly opted for more expensive homes. It’s not just that all home values appreciated—though most did, substantially—but also that there are more households, and that homeowners increasingly demanded larger, more expensive homes in more desirable neighborhoods.

Property tax critics often default to nominal property tax increases when reporting rising tax burdens. They sometimes argue that inflation adjustments are unnecessary or inapt because owners’ income (including retirement income) isn’t guaranteed to rise with inflation. But governments’ costs of providing services rise over time, and ignoring inflation dramatically overstates the increase in property taxes. When critics do concede the necessity of inflation adjustments, they rarely go any further.

Any long-term evaluation of property tax burdens must be inflation-adjusted. But a question then arises: which measure of inflation is best? The “standard” measure of inflation is typically the Consumer Price Index for All Urban Consumers (CPI-U), based on a U.S. city average, though sometimes versions specific to particular metropolitan statistical areas are used for state- or region-specific calculations, e.g., CPI-U for Cincinnati-Hamilton OH-KY-IN.

Increasingly, the federal government uses Chained CPI-U, particularly for longer time horizons. Whereas traditional CPI uses a fixed basket of goods to measure price changes in time, Chained CPI accounts for a greater level of substitution: if beef prices go up disproportionate to other meats, consumers might buy more chicken. This is a good measure for some things, but probably not for property or for local government services.

Finally, state and local government officials often prefer the Implicit Price Deflator for State and Local Government Purchases (IPDSL), which yields the highest inflation rates and thus the lowest rate of real growth in property tax collections.

The goods and services that governments purchase differ in composition from the typical basket of consumer goods, and many undergo greater cost increases. To the extent that this effect derives from the mix of goods (e.g., all construction costs are rising faster than CPI-U and construction costs are a greater share of governmental than household budgets), accounting for that through a governmental measure is reasonable. But to the extent that governments are less efficient than the private sector and operate in markets with less competition, using an inflation measure that captures rising governmental costs is probably a bad way to contain those costs.

Additionally, the Implicit Price Deflator combines state and local government expenditures, and thus includes the rapidly rising costs of health care and social welfare services largely delivered by state governments, which are less pertinent for local governments and thus less relevant to the property tax debate.

Because of this, my preference is to use the Consumer Price Index rather than the Implicit Price Deflator, but—where revenue constraints are imposed, like with property tax levy limits or other tax and expenditure limitations—to build in some fixed growth factor above CPI to account for its limitations. Just using the Implicit Price Deflator gives too much away.

With a standard inflation adjustment, property taxes rose 70 percent in real terms between 1995 and 2023.

Of course, inflation adjustments are not the whole story, though many analyses treat them as such. The population is also growing, while families are shrinking. A larger population means more housing, and at least theoretically, smaller families mean more distinct housing units proportional to population.

Interestingly, however, I see little evidence that declining household size was significant in aggregate. Part of this seems to owe to an example of Simpson’s paradox: household sizes are declining across most demographics, but the fastest-growing populations have larger (if still declining) household sizes. Immigration and increased ethnic diversity appears to be stemming the tide on the average household size. Later marriages and fewer children, moreover, may be partially offset in the data by more 20- and 30-somethings living with roommates.

Household size may not matter as much as expected, but population growth certainly does. Simply inflation-adjusting property tax collections over time cannot capture this, and thus dramatically overstates the increase in property tax burdens. After adjusting for population growth, the real increase in property tax burdens was 34 percent between 1995 and 2023.

Even that may not tell the whole story, because the composition of that property has changed. Houses are getting larger even though families are getting smaller. Floor space has increased by almost two-thirds since 1995, with large increases in both residential and commercial property. (Industrial square footage has fluctuated, but current square footage is similar to 1995 levels.) And that’s just one possible metric, just one way that properties have become more valuable.

So should we adjust for floor space or other ways that properties have improved over the decades? That’s a tougher question than the population adjustment, because while it makes sense to tax each property on its market value relative to other properties, it’s not necessarily the case that property taxes need to rise because real property get more expensive in aggregate—even when the greater expense is due to genuine improvements, like larger or more up-to-date homes.

Certain government services may cost more to provide to nicer homes, and people in wealthier neighborhoods may demand more or better government services. Still, the cost of schools, roads, and courts doesn’t change just because people’s houses got larger.

If you use floor space as a proxy for qualitative improvements in real property, the real increase in property taxes between 1995 and 2023 drops to a mere 5 percent. I think this is far too low for the reasons stated above, but it’s still a potentially valuable data point that might prompt us to apply some discount to the 34 percent real growth indicated by population and inflation growth alone.

Another way to think about property tax burdens is to express them as a share of income. As people become wealthier, they may purchase more expensive housing, which will cause aggregate property tax burdens to rise. But if income rises faster than housing prices, property taxes as a share of income can still fall.

During periods of robust economic growth, we would expect to see property tax burdens decline as a share of income, because even though demand for pricier housing might increase, there are upper limits for most purchasers: someone with a net worth of $10 million probably lives in a much more expensive house than someone with a net worth of $500,000, but it’s likely not twenty times as expensive.

Indeed, this is what we see in the data: property tax collections rose as a share of income during the housing bubble of the 2000s but have been declining ever since. That doesn’t tell us that property taxes are at the right levels, but it does offer some good news: overall, ability to pay is improving despite rising property tax bills, because income is rising even faster.

None of this tells us the “right” level of property taxation, and by any reasonable measure, property tax burdens have risen considerably faster than inflation. But how we measure the increase matters. The data tells a story, but selective or inadequately considered use of data can give the wrong impression.

Rising property tax burdens are a real issue, and one that demands real solutions. But our sense of what policy solutions are appropriate will be influenced by our sense of the breadth of the problem—meaning that it matters how we measure.

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Assuming ten duty days in California, which is typical for the Super Bowl, Seahawks quarterback Sam Darnold will owe an estimated $192,189 for playing today—more than the $113,000 he’ll make if his team loses, and even slightly more than the $188,000 he gets if he wins.

Jock taxes are just a special instance of nonresident income taxation. Many states, including California, require nonresidents to remit tax even if they only spend one day in the state.

I’ve created an embeddable calculator that allows you to select any player, set certain parameters (including adjusting the number of duty days), and see how much they’ll owe to California for playing in the Super Bowl. Click here or on the image below to go to the calculator, where you can use the “Embed” link to put this on your own site if you wish.

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That’s the subject of my latest blog post for the Tax Foundation, which you can find here.

Whereas most states used to be in the broad middle, the new distribution is increasingly bimodal. So-called millionaires’ tax proposals in Michigan, Rhode Island, Virginia, and Washington would further widen the gap, as would—in the opposite direction—additional proposals for rate reductions in a number of states.

I typically use this newsletter either to write about something that doesn’t quite fit for publication through my normal channels or to expand on something I’ve written elsewhere, but today’s email is an extremely short one with nothing more than the goal of sharing my Tax Foundation analysis, which you can find here. I believe this trend is important enough to amplify in an email, as it has significant implications for the future of state tax competition.

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Where the CEA went wrong is in attempting to calculate the rates at which a sales tax on a broad base of personal consumption could replace existing collections from states’ current individual income, corporate income, and sales taxes. The CEA estimated that an average rate of 6.23% would suffice. I ran the numbers for a Tax Foundation analysis and came up with 17.51% as a national average.

My goal in today’s newsletter is not to pick on the CEA. Instead, I want to explain one of the ways their calculations went awry, because they weren’t the first to make this mistake and they won’t be the last. Perhaps this explanation can spare others some embarrassment and provide useful insight into how to calculate the potential revenue effects of sales tax base broadening.

Let’s use Connecticut as an example. The state currently imposes a 6.35% sales tax, a corporate income tax with an 8.25% top rate, and an individual income tax with a top rate of 6.99%. (As an aside, the state’s income tax features a highly unusual recapture provision, which phases out the benefit of lower rates. In other words, high earners pay 6.99% on all taxable income, not just marginal income.)

The White House believes that these taxes can all be replaced with an 8.77% broad-based sales tax. I’m going to show you why the real rate is at least 17.22%.

Here’s what the relevant taxes raised in Connecticut in FY 2025. The pass-through entity (PTE) tax is an extension of the personal income tax on pass-through businesses, with PTE tax payments credited against ordinary individual income tax liability.

• Individual Income Tax: $12.96 billion

• Corporate Income Tax: $1.40 billion

• Pass-Through Entity Tax: $2.37 billion

• Sales and Use Tax: $6.46 billion

• Total: $23.21 billion

That’s the number to replace: $23.21 billion. Now let’s figure out how to get there.

To their credit, the CEA attempted to design a tax that only applies to final consumption. (About 41% of current sales taxes fall on business inputs.) I will follow their lead on this.

Adjusting to match fiscal year data, Connecticut’s total FY 2025 personal consumption expenditures ran about $251.5 billion. If sales tax were imposed on every last dollar of personal consumption in Connecticut, the replacement rate would be 9.23%, already slightly above the White House’s estimate of 8.77%. We should also recognize that no tax gets perfect compliance. Sales tax revenue estimates typically assume 85–⁠89 percent compliance. At 89%, the revenue-neutral rate is 10.37%.

But stopping there would be fantastically wrong. Even the CEA’s faulty calculations recognized this.

The Bureau of Economic Analysis (BEA) publishes an annual series called Personal Consumption Expenditures. It’s a measure of the economic value of personal consumption, not of transactions. Even if you’ve paid off your mortgage, for instance, you “consume” housing services by living in your own home, which the BEA estimates with an imputed rental price of owner-occupied housing. The sales tax couldn’t apply here even if policymakers wanted it to (and they don’t), since there’s no actual transaction.

The CEA claims it accounted for three exceptions—housing plus two preferential policies:

• The sales tax would not apply to rent or housing more generally.

• The sales tax would not apply to groceries.

• The sales tax would not apply to any category of good that is already taxed under an excise tax or other selective tax (gasoline, alcohol, tobacco, etc.).

Adjust for those (I only included the selective taxes they mentioned, plus insurance, which is subject to insurance premium taxes), and now we’re at 14.13%. And we’re still not done.

As I noted in my Tax Foundation analysis, the CEA’s base includes, among other things:

• All healthcare expenditures, including those covered by private insurance (funded by premiums subject to separate excise taxes) and those paid for by government through Medicare, Medicaid, and other programs (which cannot be taxed as a matter of law).

• Consumption that does not involve a financial transaction, including the full imputed value of banking services that are largely funded by banks’ reinvestment of depositor funds, not by direct fees from depositors.

• The value of services provided by nonprofits at free or subsidized rates, including scholarships and endowment subsidies that reduce college tuition, free or subsidized medical care, aid provided by charitable organizations, and the full operating expenses of houses of worship (none of which are transactions and none of which could be subject to sales tax).

• Other purchases that are not legally taxable, including internet access and purchases from the US Postal Service.

Excluding anything else that doesn’t involve a transaction (uncharged banking services, growing produce on your own land, etc.) and anything that can’t be legally taxed (Medicare, Medicaid, USPS deliveries, internet access, etc.), brings the rate to 20.10%.

But the CEA did offer some preferential exemptions, for groceries and items subject to separate excise taxes. There are arguments against these exemptions, and they certainly aren’t legally or practically necessary, though they’re certainly popular. Adding those back to the base yields the minimum possible legal rate, if lawmakers are willing to adopt a truly broad-based sales tax that falls exclusively on final consumption (avoiding any tax on business inputs).

That rate is 17.22%.

Finally, if policymakers couldn’t stomach taxing health care (beyond government-provided services), private education, financial services, and professional services (accounting, legal, etc.), and also adopted the exemptions the CEA incorporated in its plan, the replacement rate would skyrocket to 30.40%.

Incautious use of the PCE series has led many people awry, not just the economists at the CEA. Perhaps others can learn from their mistakes.

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A new paper from Rachel Moore, Brandon Pecoraro, and David Splinter at the Joint Committee on Taxation provides compelling evidence that (1) the revenue-maximizing rate is much lower than many have believed and (2) Laffer Curves, in their words, “are flat”—that is, there’s a large range of top rates where further rate increases yield very little change in revenue collections.

The red line in the above chart is the one to pay attention to, and you can see that federal taxes raise about the same amount of revenue across a range of more than ten percentage points on the rate. The authors describe this by saying that the curve is flat along the top. I prefer to think of it as a mesa.

Unlike most prior research, which used simplifying rate assumptions (e.g., considering only labor income and ignoring lower rates on capital gains income, or disregarding taxes other than the federal income tax), the new JCT paper employs more realistic tax assumptions, yielding better-calibrated results. The JCT economists model the stylized tax bases used in previous analyses, some of which are too narrow and others too broad, while contributing their own “true base” (the red line in the above chart).

They find that overall federal tax revenues only increase by 0.5% when the top federal income tax rate increases from 37% to 40%, and that it plateaus after that before eventually yielding consistent revenue reductions on the other side of the curve.

The authors identify an equity-efficiency trade-off in which GDP falls while tax progressivity increases, noting that over the flat region, “increasing the top rate raises relatively little revenue,” whereas “raising top rates primarily trades off between progressivity and growth.”

Don’t miss the significance of this combined with that flat region: across that region, higher marginal rates increase progressivity by reducing the after-tax income of high earners, not by increasing the income of low earners.

When higher rates yield higher revenues, governments can allocate some of that additional revenue to programs that benefit lower-income households. When raising top rates yields flat-lining revenue, the additional progressivity owes entirely to economic drag that reduces the income of those subject to the higher rates. The rich get less rich (and the economy gets smaller), but lower-income households don’t benefit. In fact, they stand to lose as well: lower economic growth is bad news across the income spectrum.

The JCT economists also calculate the revenue-maximizing top rate for the federal income tax when taking all taxes at all levels (federal, state, and local) into account, and find that we’re already on the mesa:

This suggests that there’s little aggregate revenue-raising potential of raising state or federal rates, though that doesn’t mean that state-level rates are themselves approaching the wrong side of the Laffer curve. Raising state rates can simultaneously shrink the pie but grow an individual state’s slice of that pie.

States that raise taxes should expect reductions on both the extensive (outmigration and capital flight) and intensive (reduced labor, investment, etc.) margins. This reduces the yield of those tax increases, and the JCT paper suggests that the systemwide effect may not involve much, if any, new revenue, but the tax-hiking state itself would still expect some level of revenue increase.

Of course, revenue maximization should not be the goal of tax policy in the first place. If 40% is the revenue-maximizing federal income tax rate, but a rate hike from 37% only yields extremely modest revenue gains while doing much more significant economic harm, that’s a strong argument against targeting revenue maximization even if you’d otherwise prefer the government to collect additional revenue. The slope of the curve before it goes flat is highly relevant here.

Moore, Pecoraro, and Splinter have substantially improved our understanding of revenue-maximizing tax rates. This paper has a lasting real-world impact.

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Last week, I explained how this provision and several others combine to massively overvalue net worth for wealth tax purposes. Valuation based on super-voting shares has been flagged as a major issue by many in California’s tech community as well. Founders and early investors often hold super-voting shares that could lead to valuations that far outstrip their actual stake in their company, potentially forcing them to sell off a significant portion of their shares and send stock prices plummeting.

That argument received pushback from four professors associated with the wealth tax initiative, who claim that the founders of publicly traded businesses would not have their holdings valued by voting or direct control rights. This provision, they note, does not apply to publicly traded assets—and therefore, they claim, it won’t apply to super-voting shares in publicly traded companies.

Their argument collapses two categories. The initiative says the voting-share valuation rule does not apply to publicly traded assets, not to shares in publicly traded entities. The memo assumes that these are identical, i.e., that all shares in a publicly traded company are publicly traded assets, even if the share class does not trade. This is not the case.

Alphabet (Google), Meta, and Airbnb, for instance, are publicly traded companies. But their founders’ Class B super-voting shares cannot be listed on an exchange. They lack a secondary market, and their value is tethered to specific founders. Those shares are not publicly traded, even though they’re shares in publicly traded companies.

The professors also argue that any improper valuation could be resolved through a dispute mechanism under which default valuations can be contested. The option of challenging a default valuation is never a sufficient solution to overly aggressive valuation rules, but is particularly inadequate here, as the initiative imposes a chilling effect on certified appraisals through severe penalties on both taxpayers and appraisers who submit valuations that California’s Franchise Tax Board (FTB) ultimately rejects.

If the FTB determines that a taxpayers’ super-voting shares should have been valued based on controlling interests, or at least valued at some premium over other company stock, the taxpayer would face a penalty of up to 40% and their appraiser could get hit with a penalty of up to 4% of the underpayment—which is potentially ruinous for appraisers, since they are tax professionals, not billionaires.

I have written a memo explaining in greater detail why, despite wealth tax supporters’ downplaying of the issue, aggressive valuation rules create the very real possibility of taxing controlling interests. The memo has been posted to SSRN and can be downloaded here.

Click Here to Download the Memo

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A fault line is emerging between the majority of states that have cut individual income taxes in pursuit of greater tax competitiveness and a minority of states that are doubling down on high taxes on high earners. We are headed toward a new reality in which there is no such thing as a “typical” rate—just low rates and high rates.

Today I want to share four I’ve written recently on these proposed taxes on high earners:

• A recent paper exploring six provisions of the proposed California wealth tax that dramatically overstate taxpayers’ net worth.

• A blog post explaining how the proposed millionaires’ tax in Washington would undercut small business owners, startups, and tech employees.

• A new paper out today, co-authored with my Tax Foundation colleagues Janelle Fritts and Nicole Fox, estimating the effects of the proposed Michigan high earners’ tax on job creation, migration, gross state product, and innovation.

• An op-ed, reprinted below, on the state economic harms of wealth taxation.

Although these pieces are specific to California, Michigan, and Washington, much of the analysis should be valuable in the context of proposals in other states as well. (If you’re interested in analysis for your state, please get in touch.)

Proposed Wealth Tax Creates Long-Term Budget Risks for California

This op-ed originally ran in the Orange County Register on January 14th.

California’s proposed wealth tax has reportedly already driven at least six billionaires out of state, and proponents haven’t even started collecting signatures yet. The preemptive exodus, and the prospect of significantly more departures later, illustrates the initiative’s fiscal risk: not only revenue under the new tax, but also sustained collections from California’s existing taxes, hinge on the decisions of a small number of highly mobile individuals who are being incentivized to leave.

As the nonpartisan Legislative Analyst’s Office noted in its evaluation of the initiative, the new tax would yield a temporary state revenue increase from the wealth tax but a “likely ongoing decrease in state income tax revenues.” A half-dozen billionaires have already left. Many more might depart if the initiative appears to have a good shot at passage, and still more would leave if it’s ratified by voters. Even with passage, moreover, the tax’s prospects are uncertain given the inevitable legal challenges. California could lose a significant share of its billionaires – and many other high earners with them – over a tax that might never generate a dime.

California’s tax system is uniquely susceptible to this risk because it relies so heavily on high earners. If billionaires leave and if they take other high earners with them, California’s top-heavy tax system would take a substantial hit. Filers with more than $1 million in annual income were responsible for around 40 percent of California’s personal income tax collections by 2019, and those with $5 million or more in income – fewer than 10,500 filers – paid 20 percent of the income tax. At a rough estimate, the state’s 200 wealthiest households, those potentially subject to the wealth tax, likely remit $5 billion or more each year in income taxes on their own.

If billionaires leave California to avoid the wealth tax, they won’t just uproot themselves. For each billionaire departure, many other high-paying jobs will follow, as cities like Austin, Phoenix, and Tampa Bay become magnets for departing tech executives, employees, and investors.

High earners tend to cluster around growing businesses and venture capitalists. If senior executives and major investors depart, they will take offices, enterprises, and, over time, high-paid employees with them. And in a state where the loss of 10,500 people would wipe out $25 billion just in personal income tax collections (based on current revenue estimates), to say nothing of revenue from other taxes, it wouldn’t take that many departures to create an ongoing budget crisis. Losing even a fraction of the state’s high earners creates a budget hole that the wealth tax cannot fill, and isn’t even designed to fill.

The proposed initiative is a one-time tax with earmarked revenue. Even if it were not tied up in litigation, its collections would not offset reduced revenue for education and other core government services. And whereas the initiative creates a one-time wealth tax, an exodus of jobs and high earners (including not just billionaires but also many other highly paid employees, particularly in the tech industry) yields lower revenue year after year. That puts pressure on school budgets (since about 40 percent of personal income tax revenue goes to education) and all other state government functions.

Under the initiative, wealth tax liability is based on residency as of January 1, 2026. However, no one is confident that this retroactive and non-proportional “snapshot” residency requirement will withstand legal scrutiny. That includes the initiative’s drafters, who included language asking courts to substitute later dates if legally necessary to preserve the tax. Billionaires could move later in the year – even after Election Day – in the expectation that the courts would revise the residency requirement.

Under the wealth tax proposal, California is at risk of losing something it can’t easily recover: not just a specific set of billionaires who may never return, but the state’s seeming inevitability as the hub for new tech investment and innovation.

Other cities and states have long chipped away at Silicon Valley’s edge, but California’s fortunes rose in tandem with the rise of artificial intelligence. If some of the tech industry’s leading figures depart to avoid a one-time wealth tax that may never even go into effect, other states’ technology hubs – the country’s Silicon Hills, Slopes, and Prairies – will be the ballot measure’s true winners, and California’s economy and state budget its losers.

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Share The Salt Road - Jared Walczak