New Report: Virginia Can Raise $992 million with New Wealth Proceeds Tax

Enacting a state tax on proceeds generated by wealth, such as capital gains, dividends, and passive business income, through a new Wealth Proceeds Tax is a simple, commonsense way for Virginia to raise almost $992 million in new state revenues and improve the fairness of the tax system, according to a new report by the Institute on Taxation and Economic Policy (ITEP).

“Recent federal actions have doubled down on concentrating wealth into the hands of millionaires and billionaires while simultaneously shifting massive costs onto states due to Medicaid and SNAP cuts,” says Megan Davis, Senior Policy Analyst at The Commonwealth Institute. “With a wealth proceeds tax, Virginia lawmakers have the opportunity to make sure the ultra-wealthy pay their fair share of taxes and raise new revenues to invest in the building blocks of our communities, like affordable health care, food assistance, public education, and more.”

Key Findings of ITEP’s Report:

• Substantial revenue potential: A 4% Wealth Proceeds Tax modeled on federal rules could raise more than $900 million a year for Virginia; an enhanced version of this tax would raise $1.25 billion a year. 
• Applies to the wealthy, not the middle class: About 66% of the new revenue would come from households with incomes over $1 million; only 5.4% of tax filers in Virginia would owe any tax.
• Fairer treatment of wealth and work: Most income generated by wealth currently faces effective federal tax rates at less than half the rate of wages and salaries (roughly 40% lower). A state Wealth Proceeds Tax would help correct this imbalance.
• Simple to implement: Virginia can piggyback on federal tax filings, minimizing administrative costs for both tax filers and Virginia’s Department of Taxation.
• Minnesota already leads the way: The state enacted a 1% Wealth Proceeds Tax in 2023 using a straightforward law just 223 words long.

“For too long, our tax systems have favored wealth over work,” said Carl Davis, ITEP’s Research Director and co-author of the report. “State Wealth Proceeds Taxes would take a major step toward correcting that imbalance.”

“States have an untapped opportunity to tax extremely wealthy families,” said Sarah Austin, ITEP Senior Analyst and co-author of the report. “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.”

Creating a state Wealth Proceeds Tax is simple. Virginia can piggyback on the federal Net Investment Income Tax (NIIT), a 3.8% levy on the investment returns of high-income households first implemented in 2013. Using the NIIT as a starting point allows states to design new taxes with minimal administrative burden and maximum impact.

Nationwide, nearly three-quarters of all Wealth Proceeds Tax revenue would come from millionaires. Virtually no households with incomes under $250,000 for married couples filing jointly (or $200,000 for single filers) would pay the tax. 

Levying a tax on wealth-derived income would improve tax fairness, reduce inequality, and provide a new, stable revenue source for Virginia to invest in key services throughout the commonwealth, such as public education, affordable housing, and more.

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About The Commonwealth Institute for Fiscal Analysis

The Commonwealth Institute for Fiscal Analysis (TCI) advances racial and economic justice in Virginia by advocating for public policies that are designed in partnership with people most impacted, and shaped by credible, accessible fiscal and policy research.

About ITEP

The Institute on Taxation and Economic Policy (ITEP) is a nonpartisan think tank that conducts research on federal, state, and local tax policies, emphasizing equity, sustainability, and fiscal responsibility.