- North Carolina legislators have introduced a bill to impose a high income tax rate on millionaires
- Such “tax the rich” schemes have failed elsewhere because wealthy people can easily move
- What would happen once the tax base eroded but the recurring spending commitments continued?
Some people refuse to learn from their mistakes or the mistakes of others.
Several Democrats in the North Carolina General Assembly have introduced a bill that would levy a new, 7 percent tax on personal income that exceeds one million dollars. The revenue from the tax would be directed to North Carolina’s public schools, and supporters claim it would provide an extra $1 billion in annual revenue.
Other states have recently gone down the “tax the rich” path, and it has ended poorly.
For instance, New York implemented a higher tax rate for millionaires in 2021. New York Governor Kathy Hochul recently admitted that her state’s tax base had been eroded and was begging for high-net-worth individuals who moved to Florida to return.
“I need people who are high-net-worth to support the generous social programs that we want to have in our state,” said Hochul.
Indeed, analysis by the Empire Center found that the state of New York’s population “was down by 238,000 residents or 1.2 percent over the four-year stretch [from 2020 to 2024], even as the U.S. population rose by 2.6 percent.”
Similarly, in response to a proposed wealth tax on billionaires in California, high-net-worth individuals such as PayPal co-founder Peter Thiel, Google co-founder Sergey Brin, and filmmaker Steven Spielberg have already left the state, taking an estimated $536 billion in wealth with them.
This capital flight, according to researchers at Stanford University’s Hoover Institution, will decrease California’s expected revenue from the tax by 60 percent.
Turns out that high-income and wealthy people are not stationary targets. If your state punishes them severely enough with high taxes, they have the resources to leave, especially in today’s online, work-from-home economy.
A 2025 analysis of migration patterns by the Tax Foundation found that low-tax states are the clear winners, while higher-tax states consistently lost residents, leaving them with a smaller tax base. Such patterns represent a massive wealth transfer from higher-tax to lower-tax states.
According to State Controller data, there are about 51,000 North Carolinians who would be affected by this tax (2023 data, the latest available). North Carolina currently has a flat rate of 3.99 percent on income over the standard deductions, with further rate reductions planned in coming years. The proposed 7 percent top marginal rate would rank 12th highest nationally, leaving plenty of options for high-income North Carolinians to flee elsewhere for tax relief.
Supporters of the proposed tax claim it is necessary due to “years of underinvestment in schools.”
“Underinvestment” is of course a highly subjective term, but what are the trends?
Since 2010, per-pupil state spending increased by 56 percent, easily outpacing the roughly 47.6 percent inflation during that time. And we can’t forget the growing influx of federal dollars to our public schools. It has increased by 90 percent in the past 20 years, well ahead of inflation, which grew by 65 percent. These increases don’t quite strike one as “years of underinvestment.”
Rather than digging deeper into taxpayers’ pockets, we could look to other government expenditures that are competing for budget dollars. In that regard, Medicaid poses the biggest threat to education funding.
State spending on Medicaid has increased 63 percent in just four years, thanks largely to expansion. Medicaid spending was 11 percent of the state General Fund budget 30 years ago. Fifteen years ago it was 13 percent. Now it’s 20 percent.
Out of a state with more than 11 million people, about 51,000 income-earners is a very narrow tax base from which to extract $1 billion of revenue. What would happen if, as we’ve seen in other states, a not-insignificant portion of that small tax base left the state or otherwise shielded their income from this new tax?
The revenue from the tax would be smaller than expected, but the recurring spending commitment based on that expected $1 billion would continue. Who do you think legislators would tax next?
Capital goes where it is welcome and stays where it is treated well. North Carolina should not make the same mistake of other states and view “the rich” as a stationary target only good for extracting money from for state government. They’re not. They are vital pieces of our economy, generating commerce and creating jobs for the people in our communities, and they have the resources to go elsewhere easily if treated poorly.
Imposing one of the highest tax rates in the nation would fail to raise the promised revenue and would risk expanding the punitive tax to the middle class to support the recurring spending commitments. The tax would also deter future in-migration of investment and job creators.
North Carolina has made tremendous strides in the last 15 years in tax reform, becoming the best state in the country to do business. Imposing this “millionaires’ tax” would be a big step back.
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