Now that the Republicans have taken control of the House of Representatives, it has become crystal clear that there will be no federal wealth tax on high-net-worth individuals for at least the next two years. Unfortunately, as with so many bad policy proposals, the push for a wealth tax has instead generated renewed interest in blue states. California, Connecticut, Hawaii, Illinois, Maryland, New York, and Washington are considering introducing their own wealth taxes. Through joint effort, they hope to make it more difficult for wealthy individuals to flee high-tax states for more favorable jurisdictions. This strategy represents wishful thinking at its finest. If this quixotic endeavor should become law, it will only hasten the exodus of wealthy individuals from blue California and New York to red Florida and Texas.

Today’s aggressive progressives hope to stall that movement by imposing an exit tax on these would-be exiles. These efforts should evoke oppressive regimes like East Germany, which erected the Berlin Wall to keep malcontents at home. It will surely face a fierce constitutional attack, as our Constitution has long been understood to have created a nationwide free-trade zone. In the United States, goods, services—and individuals—can move easily across state lines to promote economic development and growth. An exit tax imposes an explicit barrier on that project and is likely to be struck down as an impermissible burden on interstate commerce, as it is a direct descendant of the taxes and regulations that Chief Justice John Marshall struck down in such notable cases as Gibbons v. Ogden (1824) and Brown v. Maryland (1827).

Ironically, the rosy revenue projections that wealth-tax supporters such as Emmanuel Saez and Gabriel Zucman made in 2021 for its revenue potential—starting in 2023—are now hopelessly out of date. Two years ago, at the height of the pandemic, billionaires accumulated capital at near-record rates. Now, potential gains from a wealth tax have fallen because of the enormous declines in wealth (toward greater income equality!) experienced by virtually all newly minted tech moguls. Elon Musk leads the pack, with capital losses of $115 billion in 2022 alone. He has good company in Jeff Bezos ($80 billion); Mark Zuckerberg ($78 billion); and Larry Page ($40 billion). In sum, the American billionaires lost $660 billion this past year, about one-third of the $2 trillion in losses worldwide. Nothing guarantees that they will recover those losses any time soon, if ever. Considering a hypothetical 3 percent wealth tax rate, close to $20 billion in domestic wealth-tax revenue disappeared in 2022; this number would be far higher if the wealth tax also reached foreigners.

On January 10, 2023, New York Governor Kathy Hochul delivered her State of the State address against a grim political backdrop. For the past several years, New York has led the nation in net population loss, losing more than 400,000 people over the past two years, with no sign that the exodus will abate in the near future. The question is: what should the Empire State do to stem those losses? Much of the governor’s answer is that the state should somehow construct, over the next ten years, some 800,000 housing units, including many affordable ones. Along with dreaming up these units, Hochul has taken aim at localities throughout the state where the issuing of local building permits lags far behind the rate in nearby states. At the same time, Hochul has been reluctant to extend protections against eviction, which also have strong progressive support within the state.

Will New York actually take steps that will stem the string of population losses? The outlook is cloudy at best. To Hochul’s credit, one of the first parts of her program takes a page out of the classical liberal playbook on land-use law by calling for a removal of obstacles to issuing building permits. As Hochul notes, “Between full-on bans of multi-family homes, and onerous zoning and approvals processes,” these restrictions “make it difficult—even impossible—to build new homes.” It’s easy to see why. Permit denials are rarely related to the prevention of nuisance-like behavior from new construction that could impose physical dangers on existing housing. Quite the opposite. Virtually all of these permit denials and zoning restrictions have a different agenda: they hope to maintain property values for incumbent homeowners by preventing the supply expansion that would lower housing costs. Sitting owners therefore know that if they stay, they will enjoy the added benefits from these artificially high values. But the restrictions in question need not keep them tied to the state. The owners have an alternative: to sell at artificially high prices and then depart to other, more desirable (low tax, low regulation) locations.

At no point is there any guarantee that increasing the rate at which permits are issued will reverse the flow of migration out of New York, as the purchasers of their homes will not necessarily be individuals who reside outside the state.