USA Trends and Developments Contributed by: Rebecca O’Toole, Julie Sirlin Pleshivoy and William Keenen, Greenberg Traurig, LLP
Political and social drivers of high wealth taxation The expansion of state-level taxes targeting high income and high net worth individuals reflects broad - er concerns regarding wealth concentration, income inequality and tax fairness. In recent years, public attention has focused on the growing concentration of wealth among a comparatively small segment of the population. As the distribution of wealth has become more visible, policymakers have faced more pressure to adopt measures directed at those perceived to have benefited the most from economic growth and therefore possess the greatest capacity to absorb additional tax burdens. In many jurisdictions, propos - als such as millionaire taxes, billionaire taxes, mansion taxes and taxes on luxury property have been framed not only as revenue measures, but also as efforts to address perceived inequities in the distribution of eco - nomic resources and the tax burden itself. At the same time, these measures often occupy a political sweet spot. They promise meaningful rev - enue generation while affecting only a small segment of the population. Because a limited number of voters are directly affected, proposals aimed at high income and high net worth taxpayers can be politically easier to advance than broad-based tax increases. In many states, that appeal is amplified by the fact that a rela - tively small number of taxpayers already generate a substantial percentage of state tax revenue. The challenge, however, is that high income and high net worth individuals are often the most geographi - cally mobile taxpayers. Consequently, states are more frequently attempting to extract additional revenue from the very taxpayers most capable of relocating elsewhere. The result is a recurring tension between the political appeal of high wealth taxation and the growing mobility of the taxpayers from whom that revenue is derived. The freedom to relocate Affluent individuals often enjoy a degree of geographic flexibility that was unavailable to prior generations. Private aircraft, multiple residences, professional ser - vice networks that operate nationally and investment portfolios that can be managed remotely, allow many high net worth families to divide their time among several jurisdictions. Unlike taxpayers whose careers,
housing or family obligations may tie them closely to a single location, wealthy individuals generally have the resources to evaluate where they live, work and hold assets with a greater degree of choice. At the same time, remote and hybrid work arrange - ments have reduced many of the geographic con - straints that historically tied individuals to a particular jurisdiction. Executives, investors and business own - ers can often continue managing business and invest - ment activities in one state while residing in another. The COVID-19 pandemic accelerated this shift by normalising geographic flexibility and making reloca - tion a more practical option for many high income households. Taxes are not always the sole driver of relocation deci - sions, and many taxpayers choose to remain despite significant tax disparities. Family, community, busi - ness interests and professional commitments contin - ue to anchor many affluent individuals to a particular jurisdiction. Yet for those with the resources and flex - ibility to relocate, state tax policy now plays a signifi - cant role in the analysis. Evidence of wealth migration The data suggest that wealth migration is more than an anecdotal phenomenon. IRS migration statis - tics consistently show net inflows into states such as Florida and Texas and net outflows from states including California and New York. In many cases, high income taxpayers seek to establish domicile in lower-tax states that allow them to maintain close family, business and social ties to their former state of residence. For example, a California resident may move to Nevada while continuing to conduct business in Southern California, or a New York resident may establish domicile in Florida while remaining closely connected to New York-based business and family interests. Often, the objective is not to sever existing relationships, but to preserve those connections while reducing state tax exposure. Importantly, these migrations involve more than just people; they also involve the movement of substantial amounts of income and capital. IRS migration data tracks not only the number of taxpayers changing residence, but also the adjusted gross income associ -
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