Senate Finance Committee sets sights on three new tax bills for the wealthy

Democrats aim to tax the wealthy at the national level following their midterm victories. Sen. Ron Wyden, D-Ore., will retake control of the Senate Committee on Finance and has signaled that billionaires are a priority target. Three specific proposals are currently pending before the committee. Wyden stated Wednesday that the committee will redouble its efforts to ensure billionaires pay their fair share and hold tax cheats accountable.

The first measure is the Ending the Carried Interest Loophole Act, introduced in April by Wyden and Sen. Angus King, I-Maine. Current law allows fund managers to have a share of fund profits taxed at the lower capital-gains rate if investments are held for at least three years. This bill would instead tax those profits as ordinary income. It would also require managers to recognize and pay tax on deemed compensation annually rather than deferring payment until the fund realizes income. Joshua Odintz, a partner at Holland & Knight, noted that both parties have sought to change this taxation for nearly two decades.

The second proposal is the Fair Trusts for Fiscal Responsibility Act, introduced by Sen. Patty Murray, D-Wash. It targets trusts used to pass down assets while minimizing estate and gift taxes. The bill would impose a graduated annual tax on trust assets exceeding $50 million, rising to 3% for assets over $1 billion. It would also create a withholding-credit system so annual payments are tracked and credited against estate or generation-skipping taxes when assets are transferred or the trust ends. David Blum, a partner at Akerman, said the measure would fundamentally change estate planning for ultra-high-net-worth individuals if it gains traction.

The third bill is the ROBINHOOD Act, introduced by Sen. Ruben Gallego, D-Ariz., in June. It aims to curb the buy, borrow, die strategy used by wealthy founders. The bill would require ultra-rich borrowers with at least $1 billion in assets or more than $100 million in annual income to pay capital-gains taxes on selected long-term assets they borrow against. This applies only when unrealized gains on the assets are at least as large as the loan. A related House bill from Rep. Daniel Goldman, D-N.Y., would impose a 20% tax on certain asset-backed loans for borrowers earning over $400,000, while exempting mortgages and margin loans.

Tax experts note that Democrats did not win enough seats to override a veto from President Donald Trump, making passage of these wealth taxes unlikely in the next two years. However, the measures sketch the party's agenda heading into the next presidential election. Justin Miller, a partner at Evercore Wealth Management, said the proposals indicate what might be on the table if there is an administration change. He described the ROBINHOOD Act bills as narrower and far easier to implement than sweeping wealth taxes.

The Social Security trust fund is projected to exhaust its reserves by the end of 2032, adding pressure on Congress to address funding. Odintz expects more scrutiny on carried interest as lawmakers face this deadline. He believes repeal is more likely to occur inside a budget reconciliation bill than as standalone legislation. He advised wealthy taxpayers to engage with Wyden and his staff now rather than later to address potential unintended problems.