A tax proposal marketed as targeting Washington, DC's wealthiest residents would actually hit at least half of all married parents with young children in the city, according to an analysis published June 8, 2026 by the National Taxpayers Union Foundation. DC Councilmember Brianne Nadeau's proposal isn't a traditional wealth tax at all—it's a 2% surcharge on the federal Net Investment Income Tax that kicks in at $200,000 for single filers and $250,000 for married couples filing jointly. The analysis finds the tax would affect far more average families than millionaires, likely trigger significant out-migration to neighboring Virginia and Maryland, and ultimately bring in less revenue than the $121 million proponents project.
The income thresholds tell the story of who this tax really hits. In 2022 IRS data, 90.5% of DC residents who paid the federal Net Investment Income Tax earned under $1 million that year, while 71.4% earned less than $500,000. The $250,000 threshold isn't particularly high in DC's expensive housing market—the median married family with at least one child under 18 earns over that amount, according to the latest Census data cited in the report. The thresholds aren't adjusted for inflation, meaning more middle-class families will be pushed over the line each year. When the federal version launched in January 2013, the $250,000 threshold was equivalent to around $360,000 in 2026 dollars. The tax applies to net investment income including capital gains, stock dividends, rental income, royalties, and passive business income. Under Nadeau's proposal, income from certain trusts and out-of-state municipal bonds would also be added back into the calculation.
The report warns that DC is "uniquely vulnerable to outmigration" compared to other jurisdictions that have raised taxes on high earners. According to the analysis, DC already loses about 7 residents a day on net to other states, and the foundation estimates the city will lose around $180 million in revenue to net outmigration in 2026 even before this tax takes effect. The report notes that DC ranks 48th out of 51 on Tax Foundation's State Tax Competitiveness Index, with a top income tax rate of 10.75%—nearly double Virginia's 5.75% rate. Author Andrew Wilford points out that anyone can reduce their tax burden by moving just three miles across the DC border while keeping the same job, commute, and access to public transit. Only Minnesota has a similar tax at the state level, though it applies only to taxpayers with $1 million in investment income and is assessed at a 1% rate.
The report argues that higher-income taxpayers don't react to individual tax increases in isolation—they look at their total tax burden and the likelihood of future increases. The proposed surcharge would bring DC's tax rate on short-term capital gains, non-qualified dividends, and rental income to 12.75%, compared to 5.75% in Virginia. Wilford writes that high-income DC residents would face an all-in tax rate of 36.55% for long-term capital gains and 53.55% for short-term gains and non-qualified dividends. The analysis also warns of housing market effects: smaller private landlords subject to the surcharge would pass costs to renters, while the tax would intensify the "lock-in effect" that keeps appreciated homes off the market. A typical family in neighborhoods like Petworth or Shaw whose home appreciated from $150,000 to $900,000 over two decades would face a $5,000 tax bill on the sale, since only the first $500,000 in gains on a primary residence is exempt. The median DC home sells for about $650,000, while detached homes exceed $1.3 million.
The report concludes that the proposal would likely bring in less than the projected $121 million as wealthy residents relocate and would shrink DC's tax base through reduced income and property tax collections. Wilford argues that cities and states constantly seeking new revenue always turn first to their wealthiest residents, signaling to high earners that another increase is inevitable the next time the city faces a budget shortfall. Meanwhile, 13 other states cut their top income tax rates this year, making jurisdictions outside DC even more attractive. The bottom line: DC's budget problems can't be solved by a single "wealth tax" silver bullet, and firing it will only hit average District residents in the wallet.