Will there be a U.S. wealth tax? What you need to know

Over the next two and a half years, it seems very unlikely that Congress will enact major tax legislation directly affecting wealthy taxpayers. Individual states, on the other hand, are already considering, and in some cases enacting, laws that increase tax rates on high-income taxpayers. Some are even contemplating wealth taxes, which are based directly on asset values and not on the income those assets generate.

Here, we examine the proposals under discussion, placing them in historical context and evaluating their potential impact. We also consider the potential constitutional issues related to any proposed federal wealth tax.

States go their own way

In one sense, wealth taxes are nothing new: Taxes on property—real property such as real estate and personal property such as vehicles and business equipment— are effectively wealth taxes, in that they are taxes, assessed annually on the value of real or personal property, i.e., wealth. Countries outside the U.S. have from time to time enacted wealth taxes.

In another sense, however, recent state-level proposals to enact wealth taxes are unprecedented in U.S. history. Under the terms of these state proposals, a wealth tax would be based on a taxpayer’s entire asset base and there would be only limited exceptions.

California’s proposal is probably the best known. The state’s ballot initiative asks voters to approve or reject a one-time 5% tax that would affect state residents as of January 1, 2026, whose “net worth” is in excess of $1 billion as of December 31, 2026. The tax is gradually reduced for taxpayers with a net worth between $1 billion and $1.1 billion. If the initiative were to become law, a taxpayer with a net worth of $1.1 billion would owe $55 million.

Raising rates on high-income taxpayers

It is important to distinguish wealth tax proposals from proposals (and in some cases legislation, enacted or proposed) that increase the top rate on high-income taxpayers. In April, for example, Maine enacted a so-called “millionaires tax.” In a historical context, that decision was fairly routine. Many states that impose an income tax have progressive rate schedules, and Maine simply increased the top rate on those (single) filers earning more than $1 million, from 7.15% to 9.15%. Other states, including Hawaii and Rhode Island, have also expanded top income tax rates on high earners through their own versions of a millionaires tax.

In 2025, legislators in the state of Washington considered, but did not enact, new taxes on the value of certain financial intangible assets—including stocks, bonds, mutual funds and exchange traded funds (ETFs)—applicable to taxpayers with financial assets above a certain threshold. (The leading Senate bill set a 0.5% rate, while some House proposals used a 0.8% rate). Assets in retirement accounts and pensions, among other accounts, would have been exempted. The tax was expected to apply to around 4,300 taxpayers and generate around $2 billion per year.¹

Rather than adopting a wealth tax, Washington enacted a millionaires tax scheduled to take effect in 2028, marking a notable policy shift that will apply a 9.9% income tax to adjusted gross household income above $1 million per year. Washington has historically been an income tax-free state, aside from the long-term capital gains tax that took effect in 2022. 

Also in 2025, Illinois considered but did not pass a tax on billionaires’ unrealized capital gains.²

Along with California, Washington and Illinois, some other states are exploring the possibility of enacting a wealth tax. That partly reflects greater pressures on state budgets to fund residents’ healthcare and education. States may have broader latitude than the federal government to enact wealth-based taxes, although proposals targeting financial assets or unrealized gains could face significant legal challenges.

These proposals have already prompted some high-net-worth individuals to consider relocating to states with more favorable tax regimes. Anyone considering such a move should consult their tax advisors, estate-planning lawyers and J.P. Morgan team about the potential impact of moving to a new state. For more information, see “Are you thinking of moving to a new state this year?” It would also be wise to assess the potential scope of any legislative proposals. For example, the California Billionaire Tax initiative includes provisions to address property moved out of state and may (if enacted) trigger litigation over tax owed by former residents who were California residents on January 1, 2026. 

What does the Constitution say about a federal wealth tax?

Does the U.S. government have the constitutional power to impose a wealth tax? It is at the very least highly debatable.

As originally enacted, the Constitution prohibited the national government from imposing “capitation [per head], or other direct, taxes” unless they were levied in proportion to the Census. In other words, any such tax had to be apportioned first based on each state’s population.

That language is one reason that—outside of a temporary measure enacted during the Civil War—the United States had no federal income tax until 1913. In 1894, the U.S. Congress had tried to impose such a tax, but the Supreme Court, in a widely criticized 5-4 decision (Pollock v. Farmers’ Loan & Trust Company) ruled the tax unconstitutional.³

In response to the Pollock decision (and later related court rulings), various constituencies pushed to enact a federal income tax. Those efforts culminated in the adoption of the 16th Amendment, ratified by the states by 1913. That amendment empowers Congress to collect taxes on “incomes, from whatever source derived,” without apportionment. One effect of the 16th Amendment: It negates the original Constitution’s prohibition against direct taxes on “incomes, from whatever source derived.”

Would unrealized capital gains constitute “income”? It’s not a simple question. Historically, taxes—specifically, capital gains taxes—have been imposed only when there has been a “realization” event, generally, when an asset has been sold, with limited exceptions. Put another way, it remains to be seen whether the word “derived” in the 16th Amendment is a synonym for “realized” as that word has been broadly used in an income tax context.

We do not expect any wealth tax proposals to be considered seriously at the federal level for at least the next two and a half years. If a wealth tax were enacted, we would expect immediate and significant challenges to it on constitutional grounds. But as we’ve discussed, states do not face the same constraints as the national government in writing tax law. We expect a group of states will continue to consider wealth taxes, and other tax proposals, as potential sources of new revenue.