Report Offers Easy Path for States to Make Tax Code Fairer by Targeting the Rich
"For too long, our tax systems have favored wealth over work," said the report's co-author. "State wealth proceeds taxes would take a major step toward correcting that imbalance.”
Taxing the passive proceeds of extreme wealth—including capital gains and stock dividends—is an easy way for states to generate billions of dollars in revenue, reduce inequality, and boost fairness in tax systems, according to a report published Thursday.
The Institute on Taxation and Economic Policy (ITEP) report shows how state-level wealth proceeds taxes of just 4% on profits generated by means including capital gains, dividends, and passive business income could raise more than $45 billion a year in revenue nationwide, while an enhanced version of such a levy would generate $57 billion annually.
According to the report, approximately three-quarters of such revenue would come from households with annual incomes exceeding $1 million—and only 4.4% of US taxpayers would owe anything at all.
Wealth inequality gets worse when working households pay more in taxes than wealthy owners.States have a simple way to address this problem and raise much-needed revenue.It's well past time for a Wealth Proceeds Tax.
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— ITEP (@itep.org) October 30, 2025 at 10:44 AM
Other key findings of the report include:
- A state wealth proceeds tax would help correct an imbalance in which most of the income generated by passive wealth currently faces effective federal tax rates roughly 40% lower than wages and salaries;
- A wealth proceeds tax is easy to implement—states can piggyback on federal filings, minimizing administrative costs for both taxpayers and state revenue agencies; and
- For a successful example of a wealth proceeds tax, look to Minnesota.
In 2023, Minnesota became the first state to enact a law piggybacking a wealth proceeds tax on the federal net investment income tax (NIIT), a levy on certain earnings from high-income individuals, estates, and trusts. Minnesota's 1% tax only applies to such wealth exceeding $1 million and is expected to raise more than $60 million in revenue in 2026.
Other states, while not having a wealth proceeds tax, apply higher levies on certain types of proceeds. Massachusetts, for example, imposes a short-term capital gains that is 3.5% higher than the ordinary state income tax rate, while Maryland enacted a 2% levy on short- and long-term capital gains for households earning more than $350,000 annually.
“States have an untapped opportunity to tax extremely wealthy families," ITEP senior analyst and report co-author Sarah Austin said in a statement. “The federal government already defines what counts as wealth-derived income, so states can easily adapt that framework to make their tax codes fairer and more robust.”
The report's other author, ITEP research director Carl Davis, said: "For too long, our tax systems have favored wealth over work. State wealth proceeds taxes would take a major step toward correcting that imbalance.”
