State exit taxes are comparatively more progressive

Progressivity is an important justification underlying national level exit taxes.51 The progressivity theory is tied to fairness—a more progressive tax regime improves the distribution of the tax burden.52 An exit tax naturally effectuates progressivity because it primarily impacts individuals with substantial wealth from capital appreciation. These individuals tend to be wealthier generally and they enjoy the benefit of deferred taxation until a realization event, the timing of which they control.53 An exit tax mitigates the inequity between individuals with income from capital appreciation as opposed to income from labor, the latter of whom generally cannot choose when to realize and thus pay tax on their income.54 A state exit tax can effectuate progressivity even further, especially if the tax has an exemption or application threshold so the tax applies only to residents with substantial income or wealth.55 If an individual can migrate out of a state and avoid paying income tax on the gain that accrued while in the state, it is unfair to the individual who does not—or does not have the financial means to—migrate out of the state.56 In addition, most states have progressive personal income tax rate structures and most states do not have preferential capital gains rates.57 Thus, the exit tax can be even more progressive at the subnational level than at the United States national level.