Veronique de Rugy is the George Gibbs Chair in political economy and a senior research fellow at the Mercatus Center.
After President Donald Trump’s first year back in office — marked by battered institutions, executive overreach and contempt for basic constraints on presidential power — Democrats would be wise to unify around an alternative message rooted in competence, restraint, affordability and institutional repair. There is no shortage of voters uneasy with Trump’s behavior and eager for a credible counterweight.
And yet, the party’s loudest message is an aggressive push for confiscation camouflaged by the rhetoric of moral clarity and fiscal responsibility. Democrats may have something to offer to voters caught in the middle, but how many will notice with large states like New York, Virginia and California pushing to punish the wealthy?
In the Empire State, Gov. Kathy Hochul may have resisted this self-destructive impulse, but her position looks nearly heterodox in a party whose message now belongs to New York Mayor Zohran Mamdani, billed as the future of the party.
Hochul’s $260 billion executive budget avoids new personal income tax hikes on high earners, presumably because she knows that the state has already pushed them to the edge. But Mamdani and his enthusiasts insist “the time has come to tax the richest New Yorkers.” Including local income taxes, the city already has the highest top combined marginal rate in the country. The mayor wants to add another 2 percent for millionaires and raise the top corporate rate from 7.25 percent to 11.5 percent. New York’s loss will be Florida’s gain.
Then there’s Virginia, where Democrats mostly ran as moderates but didn’t waste a minute showing their true colors. With unified statehouse control, they last month introduced a barrage of new taxes — not as a last resort, but as a first order of business.
Proposals include a new bracketthat would nearly double the marginal rate to 10 percent on income above $1 million, layering a 3.8 percent net investment income tax on capital gains and passive income, imposing new sales taxes on a range of services, including internet, delivery, dry cleaning and landscaping and levying an 11 percent gross-receipts tax on firearms and ammunition. Also underway in Virginia are efforts to rejoin cap-and-trade programs that function as backdoor energy taxes.
Meanwhile, neighboring states with Republican-led statehouses like North Carolina are cutting taxes — West Virginia is even incrementally pursuing income tax elimination — to compete for investment and workers. Georgia and South Carolina openly court mobile capital.
Finally, there’s California, always eager to demonstrate the logical endpoint of the big-government worldview. The “2026 Billionaire Tax Act” — a ballot measure initiated by the Service Employees International Union — is advertised as a one-time, 5 percent levy on billionaires’ net worth. It’s structured in ways that could push effective tax burdens far higher.
Under the proposed law, California could tax assets based on voting interests in a company rather than actual economic ownership, systematically overvalue private businesses (by ignoring illiquidity and risk) and impose harsh penalties that pressure taxpayers and appraisers to opt for the flawed valuations. Anti-avoidance provisions would result in taxes on assets that have already been transferred or sold, meaning liability could exceed the value of what the taxpayer actually owns.
Other provisions in the California ballot proposal compound the problem. Spousal and divorce rules can sweep in nonresident spouses’ assets or re-tax assets already assigned in divorce settlements. Deferral options could raise the effective tax rate or impose taxes on wealth that later disappears. “Optional Deferral Accounts” would entangle taxpayers in a state-controlled regime that exposes them to open-ended liability as the state claims a share of all future appreciation, potentially pushing the effective tax well beyond 5 percent.
Together, these features will push founders and investors to leave California, with damaging consequences for jobs, investment and growth. To his credit, Gov. Gavin Newsom opposes the measure. Other Democrats including Rep. Ro Khanna, who represents much of Silicon Valley, have endorsed it. Taxing billionaires more is a popular slogan. Even if this attempt fails, savvy Californians know it’s just a first trial.
History suggests that it never ends with “the rich.” Taxing billionaires might sound good to progressive voters, but wealth taxes never raise the kind of money their proponents promise. Not when property is temporary, contingent and subject to political reallocation. Once that becomes the governing principle, the tax base widens. Taxes on capital today becomes taxes on labor tomorrow. Wealth taxes become broader asset taxes. Temporary surcharges become permanent levies. The bill eventually always reaches the middle class because that’s where the real revenue lies.
A handful of Democratic state leaders understand that endless soak-the-rich politics undermine growth, revenue stability and long-term affordability. Colorado’s Gov. Jared Polis has pushed income tax cuts and openly argued that lower, broader taxes better serve workers and innovation. In Pennsylvania, Gov. Josh Shapiro has focused on regulatory reform and supply-side growth rather than new tax grabs.
If Democrats want voters to believe they are an alternative to political excess, they should elevate voices that champion a return to rule-bound governance, stable tax policy and fiscal restraint. They would advance a national affordability agenda by expanding housing and energy supplies and dismantling the other bottlenecks making everyday life more expensive.
Alas, the party’s message setters seem to hope that voters mistake confiscation for compassion (e.g., Mamdani on the “warmth of collectivism”). Don’t be surprised if they convince fewer people than they hope to.
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