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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.”
Oct 31, 2025
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.”
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Minnesota's Xp Lee Wins Special Election to Fill Seat of Assassinated Democrat Melissa Hortman
“I have never lost sight of the situation that brought us to this moment, and I will work hard every day to carry forward Speaker Melissa Hortman’s legacy,” said Lee.
Sep 17, 2025
Democrat Xp Lee was elected to the US House of Representatives in a special election in Minnesota on Tuesday, filling the seat left vacant after former state House Rep. Melissa Hortman—alongside her husband, Mark—were the victims of a politically-motivated murder in June.
Lee, a state employee and union member who previously served on the Brooklyn Park City Council, beat Republican nominee Ruth Bittner, a local real estate agent who had never held public office before, in a district that has long favored Democrats and which Hortman held for two decades.
In a statement, Lee acknowledged Hortman as he solemnly referenced the political violence that led to the special election.
“I have never lost sight of the situation that brought us to this moment, and I will work hard every day to carry forward Speaker Melissa Hortman’s legacy,” Lee said. “We did our best to make her proud: knocking on doors daily, making phone calls, and texting every neighbor we could.”
"Now the real work begins," Lee said in a separate statement on Facebook. "Together, we will focus on delivering results—making sure families in Brooklyn Park, Champlin, and Coon Rapids have access to good schools, affordable healthcare, safe neighborhoods, and strong economic opportunities."
The assassination of Hortman, a Democrat, shocked the state and the nation. In the early morning of June 14, an individual posing as a law enforcement officer came to the Hortmans' house and shot both Hortman and her husband. Vance Boelter, 57, faces both federal and state murder charges for the killing of the Hortmans as well as the attempted murder and other charges for a similar attack on the same day against Minnesota State Sen. John Hofmman, also a Democrat, and his wife, Yvette. Both John and Yvette Hoffman were shot, but survived, and the assailant also targeted their daughter, Hope Hoffman.
"I offer a heartfelt congratulations to Xp Lee on his victory in tonight’s special election," said Democratic National Committee chairman Ken Martin in a statement following the win.
"Xp's commitment to expanding access to education, affordable health care, and good-paying jobs honors the legacy of our dear friend, Speaker Emeritus Melissa Hortman," Martin added. "Across Minnesota, our hearts are still broken by the horrific assassination that stole Melissa and her husband Mark. Political violence is a scourge that has taken far too many lives. Enough is enough. It must end now. And in every case, each of us has a responsibility to condemn and reject political violence wherever it rears its head."
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'Stain on Our Party': Ilhan Omar Condemns Minnesota Dems for Tossing Fateh's Mayor Endorsement
The Minnesota congresswoman said the decision demonstrated "the influence of big money in our politics."
Aug 22, 2025
Rep. Ilhan Omar (D-Minn.) issued a fearsome rebuke to her state's Democratic Party Thursday, calling its decision to rescind its endorsement of democratic socialist state Rep. Omar Fateh for mayor of Minneapolis "inexcusable."
In what supporters called "a rejection of politics as usual," Fateh was elected last month by delegates at the Minneapolis convention for the Democrats, known in Minnesota as the Democratic Farmer-Labor Party, to receive the party's endorsement for mayor over the well-funded two-term incumbent Jacob Frey.
The convention was marred by chaos after a malfunction in the electronic voting system. The final tally of the 577 counted votes had Fateh with 43.8% of the vote and Frey with 31.5%. On the second ballot, which was conducted through a show of hands due to the system failure, Fateh was elected overwhelmingly after Frey told his delegates to leave the convention.
A party investigation initiated after a complaint from Frey found that the malfunction resulted in 176 ballots in the first round of voting being uncounted, which denied the entry of a third candidate, DeWayne Davis, onto the second ballot.
However, these irregularities did not affect the second vote, which is what resulted in Fateh receiving the endorsement.
Nevertheless, DFL announced Thursday that it had "vacated" Fateh's nomination, citing what it said were "substantial failures in the convention's voting process."
As a result, access to party voter rolls, which usually only go to the candidate endorsed by the DFL, will now be given to everyone, which could considerably hurt Fateh's chances of unseating Frey.
Joined by over a dozen other DFL state and local officials, Ilhan Omar issued a statement condemning the party's decision.
"Last month, thousands of caucus-goers and delegates across Minneapolis gathered to participate in the Minneapolis DFL Convention," Omar said. "Now, a month later, a small group of DFL board members, a majority living outside Minneapolis, met privately to overturn the will of Minneapolis delegates who volunteered, organized, and participated in a monthslong DFL process."
"It is inexcusable to overturn the results weeks after the convention because board members did not like the outcome," Omar continued. "Not only does this decision set an extremely dangerous precedent, but it will undermine the DFL endorsing process going forward and fail to center the will of delegates."
"Fateh is getting screwed," said Zach Lindstrom, the mayor of the St. Paul suburb of Mounds View, who served as the sergeant-at-arms during the convention.
"It was clear, crystal clear, Fateh had the vast majority of support in the room; his supporters filled two entire sections. Frey's didn't even fill one," he continued. "I saw with my own eyes someone who clearly had the room, and for him to get rugged is just another reason the party approval is at an all-time low and hemorrhaging support."
Fateh, who won his state Senate seat in 2020, has found success with a campaign that followed in the footsteps of insurgent New York mayoral candidate Zohran Mamdani.
His message has likewise focused on affordability, including pushing for the city to introduce rent controls and investments in affordable housing paid for by increased taxes on wealthy residents. He has also called for the city to raise its minimum wage to $20 an hour.
Fateh has also said that the city's overwhelmed police department should divert many calls to "non-police responders" better trained to handle issues related to mental health, homelessness, and drug use.
Fateh ran as a harsh critic of the Democratic establishment that he says is personified by Frey.
In past elections, Frey has received substantial support from the real estate and restaurant industries. While information about his fundraising in 2025 is incomplete, the Minnesota Star Tribune reported earlier this month that, despite having fewer individual donors, Frey had amassed a war chest of over $539,000, eight times the size of Fateh's.
One group that fiercely contested Fateh's nomination was the We Love Minneapolis PAC, which has been accused of illegally coordinating expenditures with the Frey campaign in violation of campaign finance laws. Fateh has accused the PAC and others supporting Frey of being organs of "wealthy donors."
After the DFL stripped his endorsement, Fateh said in a video that "28 party insiders voted to take away our endorsement behind closed doors," and asserted that the insiders included "non-Minneapolis residents, Mayor Frey supporters, and even donors."
"This is exactly what Minneapolis voters are sick of," Fateh continued. "The insider games, the backroom decisions, and feeling like our voice doesn't matter in our own city."
Ilhan Omar says the DFL's decision demonstrated the "clear tension between the progressive Democrats who are challenging the status quo and moderate Democrats."
"Throughout this mayoral campaign, we have seen the influence of big money in our politics," she continued. "We know organized people beat organized money. Fateh's campaign organized and won the endorsement. This decision will be a stain on our party for years to come and damage our ability to organize for Democratic wins this year, next year, and beyond."
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