The Tax-the-rich Moment Democrats Could Squander

Blue-state Democrats are raring to tax the ultra-rich. They’re also fighting over just how far to go.

A fervor for squeezing more from billionaires has swept through the party’s coastal bastions as elected officials and allies like organized labor hunt for new revenue to offset deep federal cuts and mollify a base incensed by widening economic inequality.

But beneath the broad consensus on taxing wealth lie deep divisions over what the party is willing to risk to do it. Those fissures reflect a broader economic debate among Democrats as an ascendant progressive faction, ready to embrace sweeping measures like California’s proposed wealth tax, contends with centrist governors and establishment allies wary of the political and economic fallout.

“We’re starting to see a greater understanding among Democrats, both progressives and more moderate Democrats, that this is a critical issue if you care about public services,” said Kitty Richards, a senior fellow at Groundwork Collaborative and former Biden Treasury official. “The appetite among voters is really growing for solutions and for bold action, and so we're going to see these fights play out really dramatically over the next couple years.”

The broader push is already showing up in state tax policy: Several Democratic-led states, including Washington and Maine, have recently created new tax rates for millionaires. But in California and New York, divisions over how to proceed could squander Democrats’ edge on an issue that is animating voters.

In New York, Gov. Kathy Hochul is facing pressure from Mayor Zohran Mamdani and others on her left flank to embrace broader tax increases as she seeks a second term — even as she has rejected them for much of her time in office. In California, a first-in-the-nation bid for a 5 percent tax on billionaires’ assets to fund health care services has riven the Democratic coalition, driving a wedge through organized labor and setting Gov. Gavin Newsom against the California Democratic Party, which endorsed the proposal.

“The only way you can get good tax policy is unanimity among those of us looking for progressive tax policy,” said Lenny Goldberg, who fought for higher corporate taxes when he led the labor-backed California Tax Reform Association. “It’s unfortunate it happened this way.”

The disputes unfolding in Democratic strongholds make the states early testing grounds for the party’s competing responses to voters’ pervasive economic frustrations — dynamics likely to reverberate through the 2028 presidential contest, as Newsom and other likely contenders fine-tune messages of economic justice.

The California split

The Democrats, unions, and health care groups opposing the California wealth tax argue it is structurally flawed — a one-time hit that will overwhelmingly benefit the health care union supporting it — and warn it could backfire by driving away the affluent residents who pay an outsize share of the state’s tax revenue. Behind the scenes, many are furious that SEIU-UHW and its leader, Dave Regan, pressed ahead with the measure despite deep reservations within organized labor.

But liberal foes of the wealth tax insist they still support taxing the super-rich — just not this way.

Newsom, who has long defended California’s progressive tax system, pivoted from trying to kill the union’s proposal to pitching a national tax that would likely be a key plank of his presidential bid. The California Teachers Association is focused on a separate November ballot measure to renew and make permanent a higher income tax on top earners — which some supporters fear could be collateral damage from a deep-pocketed backlash to the wealth tax.

There are broader considerations at play. Facing years of deficits, California unions are both pushing corporate taxes in the Legislature — an issue likely to land before gubernatorial frontrunner Xavier Becerra first thing next year — and mulling another shot at amending a landmark property tax law, Proposition 13, to charge businesses more. The wealth tax fracas underscores sharply different opinions on how to best pursue that shared goal.

“There’s always going to be tactical differences, even if we have the same general strategic thinking about wealth inequality,” said CTA President David Goldberg (who is not related to Lenny).

Wealth tax proponents reject the argument that the parallel measures could damage one another and assert there is no realistic alternative for offsetting enormous federal cuts — including nearly $1 trillion to Medicaid over a decade — that could devastate hospitals and wipe out health care jobs when they take effect next year.

Its loudest champions, like progressive presidential contender California Rep. Ro Khanna, make a broader argument: that the wealth tax is a litmus test for Democrats with national ambitions — and that foes like Newsom are too in thrall to wealthy donors to hear voters’ demand that the rich pay more.

"I do believe this is a defining fight of the Democratic Party in the country," Khanna said in an interview. "This is one of the key issues and will shape the conversation in ‘26 and ‘28."

Yet Newsom is not the only leading Democrat to distance himself from the tax. Becerra has also rebuffed it. Sen. Elizabeth Warren, who built her presidential campaign around a national wealth tax, echoed Newsom and the leadership of the San Francisco Democratic Party in saying it should be a federal policy rather than a state one. Even progressive billionaire Tom Steyer has backed away from the tepid support he voiced for the wealth tax while vying for the left lane in California’s gubernatorial primary.

New York’s test

California’s political rift has drawn enormous attention because of the state’s outsize influence on Democratic politics and the ferocious backlash it has ignited in Silicon Valley, where political allegiances have shifted dramatically during the Trump era. But the battle gathering steam in New York also speaks to a hinge moment as a leftist coalition growing stronger in Albany looks to further increase its pressure on Hochul, who has resisted broad-based tax hikes.

Tax-hike supporters in New York believe raising taxes is necessary to fund social services and offset the loss of federal funding. But the pursuit of higher taxes also reflects a philosophical belief that redistributing wealth is necessary to combat a growing gap between billionaires and everyone else.

“It's almost like a blind hatred some people have for people who have a lot of money,” former New York Gov. David Paterson said.

Hochul has had to navigate this populist uprising among voters in her deep blue state as she seeks a second full term — a movement forged by deep-seated concerns that the Big Apple has become far too expensive and one Mamdani harnessed in his upset election last year. A July POLITICO poll found more than half of U.S. voters — 53 percent — believe billionaires should pay more in taxes.

That has put Hochul on fraught terrain.

She supported a surcharge on pricey second homes in New York City — a narrowly prescribed tax meant to help the new mayor fulfill his expansive and costly agenda. But Mamdani’s bumpy rollout of the tax — which included publishing a database listing the names and addresses of New Yorkers who may qualify for the surcharge — drew widespread criticism, including from Hochul.

“I wasn’t a fan of the rollout of the pied-a-terre tax,” she told reporters this month.

Still, Hochul has not fully ruled out supporting additional tax increases next year, blaming the uncertainty from Republican-controlled Washington as well as federal spending reductions that have impacted New York.

In an interview with El Diario, Hochul said she understood why people are exasperated with the wide gap between rich and poor.

“So there's a frustration that is real, and I understand that,” she told the Spanish-language newspaper last month. “I also believe that as a leader of the state that has probably the highest taxes in the nation, I want to make sure that we don't just tax for — tax people for the sake of taxing, that there's actually a rationale behind it.”

Hochul spokesperson Jen Goodman reiterated that stance in a statement and added, “The governor makes decisions based on what’s best for New Yorkers, and no amount of political pressure can change that.”

She also has to show she can work with Mamdani, who draws support from an ardent base. A Siena Research Institute poll this month found he has a 69 percent favorable rating in vote-rich New York City.

Hochul and Mamdani have bonded over their shared goal of expanding no-cost child care in New York — an expensive service funded in large part by the state. Tax-the-rich supporters believe they can persuade the governor to back higher rates by leveraging child care.

"It’s really our duty and responsibility to raise the revenue to keep New Yorkers in their homes, make sure they have access to child care and health care," said Assemblymember Jessica Gonzalez-Rojas, a Democratic state Senate candidate who was endorsed by Rep. Alexandria Ocasio-Cortez. "There’s definitely an appetite to keep fighting."

The left also has another potent argument: Taxing the rich is popular with voters.

“We have a whole new class of both socialist and Working Families Party-endorsed legislators coming in,” Gonzalez-Rojas said. “We have an even greater chance of pushing for the suite of bills we’ve been championing for the last several years.”

This left-flank pressure on the governor has frustrated her political allies, who need her to be a robust top of the ticket so that down-ballot candidates — including Democrats running in a handful of swing House seats — are successful.

“The DSA has its agenda and that's fine,” New York Democratic Party Chair Jay Jacobs said. “But the DSA does not run the Democratic Party.”

And their rhetoric has annoyed Hochul’s supporters in New York’s business elite. Financial services companies, real estate magnates and tech moguls have been queasy with the surging success of democratic socialists in New York elections. In addition to Mamdani’s win last year, DSA-backed candidates Darializa Avila Chevalier and Claire Valdez upset establishment-allied Democrats in the June congressional primaries.

New York City, one of the nation’s economic engines, has struggled with job growth. Like Newsom in California, Hochul and business leaders also warn that taxing rich residents will spark a wealth exodus. The Empire State relies on 1 percent of its taxpayers for about 40 percent of its revenue from the personal income tax.

“You’re seeing two types of elected officials: people who are approaching problems with real solutions that speak to the challenges and how to confront them and some elected officials who are more opportunistic and gravitate towards political soundbites,” said Steve Fulop, president of the business-backed Partnership for New York City and a Hochul ally. “Chasing people out of the state doesn't lead to good outcomes.”

New York Republican gubernatorial candidate Bruce Blakeman has sounded a similar alarm and is pledging an across-the-board tax cut if elected.

Hochul's support for the second-home surcharge has encouraged some left-leaning advocates, who believe she can be persuaded to back other revenue-generator mechanisms beyond an income tax hike. Advocacy organizations are planning to press for an inheritance tax as well as a state-level capital gains tax when the state Legislature reconvenes in Albany early next year.

Ultimately, for many Democratic voters, the sheer visceral appeal of taking on the oligarchy will eclipse concerns about tactics or how taxes are structured. Lenny Goldberg said despite his reservations about California’s wealth tax, “the world is watching” what happens in the Golden State.

"It's very hard not to just vote to tax the billionaires — it's the conflict between the policy-wonk understanding and the symbolic nature of this," he said. "I'm going to have a hard time voting no."