Newt’s World, Episode 957: Wealth Taxes in Blue States

Host: Newt Gingrich (Gingrich 360)
Guest: Jack Salmon (Gibbs Scholar and Research Fellow, Mercatus Center, George Mason University)
Date: March 20, 2026

Episode Overview

In this episode, Newt Gingrich sits down with economist Jack Salmon to discuss the recent push for wealth taxes in traditionally "blue" states such as California, New York, Washington, and others. The conversation dives deeply into the fiscal, economic, and political consequences of these taxes—especially their impact on high earners, state budgets, and interstate migration. Salmon places these state movements in both a national and international context, drawing lessons from European attempts at similar policies. The discussion also extends to the looming federal fiscal crisis, highlighting looming trust fund depletions for Social Security and Medicare.

Key Discussion Points and Insights

1. The Wealth Tax Trend in Blue States

• Eight states, including California, Connecticut, Hawaii, Illinois, Maryland, Minnesota, New York, and Washington, have introduced or considered wealth taxes targeting high-net-worth residents.
• These taxes include direct wealth levies, surtaxes, and capital gains tax hikes, mostly justified by state “budget shortfalls.”
• Washington state is considering a nearly 10% annual tax on earnings over $1 million, on top of other recent high-income taxes (03:10).

Notable Quote:

“They just seemed very determined on chasing their tax bases away.”
—Jack Salmon (04:57)

2. The Washington State Case Study

• Washington was previously a no-income-tax state, drawing innovators and entrepreneurs.
• Over the last decade, state spending doubled, prompting new taxes rather than spending restraint.
• Enacted a 7% capital gains tax in 2021, then later proposed a 9.9% tax on income above $1 million.
• This drove out high earners including Jeff Bezos, who moved to Florida and took billions in taxable revenue with him.

Notable Quote:

“By 2021, the state policymakers proposed... a 7% capital gains tax on those making $250,000 and above… Some of the highest earning taxpayers in the state left the state... Jeff Bezos… moved to Florida and took his tax dollars with him.”
—Jack Salmon (06:02)

3. Migration & Tax Base Erosion

• Evidence shows a significant exodus of high earners:
  • 2,300 left Washington in 2021, 6,400 in 2022 (11:11).
  • The top 1% of earners contribute ~40–50% of all state income tax revenue (15:27).
• Similar trends seen in California, with billionaires like Elon Musk and others relocating.

Notable Quote:

“Even a sort of a marginal decrease in the number of those residents has a significant long term impact... on the potential revenues that those states can reap.”
—Jack Salmon (15:27)

4. International Lessons

• Most European nations have abandoned wealth taxes due to capital flight and administrative burdens.
• UK’s socialist government in the 1970s rejected wealth taxes after realizing the costs likely outweighed revenues.

Notable Quote:

“Even the socialist government in the 1970s [in the UK] came to the conclusion that the cost of administering the tax would probably outweigh any net revenues gained.”
—Jack Salmon (09:16)

5. California’s Billionaire Tax Ballot Initiative

• Proposed 5% one-time tax on worldwide net worth over $1 billion, applicable to anyone resident as of January 1, 2026.
• Even Governor Newsom opposes, citing harm to state competitiveness (19:18).
• Academic analysis predicts actual negative fiscal impact: instead of $100 billion in revenue, the state may lose $25 billion in present value, as departing billionaires take away future tax contributions (19:18–23:09).

Notable Quote:

“It will actually lose the state $25 billion. Just under $25 billion. So this tax proposal that is being proposed to close a supposed health care funding gap would actually lose the state $25 billion in net present value.”
—Jack Salmon (22:50)

6. The Ideology Behind Wealth Taxes

• Many on the political left frame wealth taxes as simple solutions to fiscal shortfalls, ignoring both math and economic behavioral responses.
• Wealth taxes have high administrative costs, encourage tax avoidance, and result in “capital flight.”

Notable Quote:

“The economic literature and the math itself just doesn't support the simple fact that we can't fix our fiscal shortfalls by taxing a very small tax base that provides much of the growth, the innovation, [and] the jobs.”
—Jack Salmon (23:13)

7. Federal Fiscal Crisis Looms

• Trust fund depletion for Social Security and Medicare expected by 2032–33, risking 23–24% benefit cuts or increased taxes.
• Cumulative shortfall: roughly $120 trillion over 30 years (33:48).
• At the federal level, rising interest costs and ballooning debt ($2.5 trillion increase in just the past nine months, per Salmon) exacerbate the issue.
• States—especially those dependent on federal transfers—are vulnerable when Washington inevitably curtails aid (30:06).

Notable Quote:

“We’re running $2 trillion deficits with no end in sight... Our entitlement programs are growing well beyond our potential economic growth rates.”
—Jack Salmon (25:12)

8. Red vs. Blue States: Policy Divergence

• Red states, flush with migrating high earners, are lowering taxes and broadening their tax base.
• Salmon cautions: red states should save windfalls for future fiscal shocks and reduce federal dependency (25:12).
• The secondary effects of blue state tax increases include stagnating cultural/creative activity as high-net-worth individuals—who fund arts, philanthropy, and new ventures—leave (24:17).

9. Health Care Spending and Reform

• US health care spending (17–18% GDP) is a structural barrier to fiscal balance.
• Salmon and Gingrich agree fundamental reforms are needed, especially around transparency and consumer empowerment.
• All interest groups resist change, making substantial reform difficult.

Notable Quote:

“There's a deeply structural problem that makes the system opaque and gets rid of any sort of transparency. There's a much sort of deeper problem that we have with our healthcare system that really requires fundamental reform.”
—Jack Salmon (35:54)

10. Glimmers of Hope & Calls for Optimism

• Newsom's opposition to California’s wealth tax shows potential moderation.
• History shows bipartisan solutions (balanced budgets of the 1990s, 1983 Social Security reforms) are possible—though today's challenges are even more pressing.

Notable Quote:

“You really have to try and find little pieces of hope where you can... when you were speaker of the House in the 1990s, there was some bipartisan work done on this front and the fiscal position did improve.”
—Jack Salmon (37:46)

Selected Notable Quotes with Timestamps

• “They just seemed very determined on chasing their tax bases away.” —Jack Salmon (04:57)
• "We learned lessons... the capital left, the millionaires packed up and moved to lower tax jurisdictions." —Jack Salmon (09:16)
• “Even a marginal decrease in the number of those residents has a significant long term impact... on the potential revenues that those states can reap.” —Jack Salmon (15:27)
• “This wealth tax won't raise $100 billion. It will actually lose the state $25 billion.” —Jack Salmon (22:50)
• "We can't fix our fiscal shortfalls by taxing a very small tax base... This tax base is also the most mobile." —Jack Salmon (23:13)
• "We're running $2 trillion deficits with no end in sight and that's only getting worse." —Jack Salmon (25:12)
• "The problem that we're facing now is about twice as large in terms of the fiscal costs as it was in 1983." —Jack Salmon (32:32)
• "There's a deeply structural problem that makes the [healthcare] system opaque and gets rid of any sort of transparency." —Jack Salmon (35:54)
• "You really have to try and find little pieces of hope where you can..." —Jack Salmon (37:46)

Key Timestamps

• 03:10 – Introduction of Jack Salmon, overview of Washington’s wealth tax
• 06:02 – Details on Washington’s tax policy changes and resulting exodus of wealthy residents
• 09:16 – International comparisons, lessons from Europe and UK
• 11:11–12:39 – Evidence of theft, bureaucracy inefficiency, and migration data
• 15:18–17:15 – Impact and magnitude of high earners’ departures
• 17:56 – Economic “unseen” second-order effects: loss of entrepreneurs, jobs, and sporting events
• 19:18–23:09 – Deep dive on California’s billionaire tax initiative and Hoover Institution analysis
• 25:12 – Advice for red states, federal fiscal risk, and future federal funding cuts
• 30:06–32:32 – Spiraling federal debt and trust fund countdown
• 33:48–35:18 – Social Security and Medicare insolvency timelines
• 35:54–36:27 – Healthcare spending as a structural fiscal issue
• 37:46–38:56 – Reasons for optimism and historical perspective

Summary and Takeaways

This episode offers a comprehensive, data-driven critique of blue state wealth taxes, arguing they are counterproductive—driving out the very taxpayers states need, deepening fiscal woes, and prompting long-term economic and cultural decline. Drawing on economic history, migration data, and recent fiscal trends, the discussion warns red states to prepare for reductions in federal support. Both speakers emphasize the need for fundamental reform—especially in healthcare—and bipartisan willingness to make tough fiscal choices.

For further research and articles: Visit mercatus.org

Tone: Direct, data-oriented, skeptical of state-level wealth tax efficacy, cautiously optimistic about the possibility of bipartisan fiscal reform.