Article
Federal tax proposals for high-net-worth individuals: Four themes to watch
July 10, 2026 · Authored by Andrew Whitehair
Key takeaways
- While current Federal tax proposals targeting high-net-worth taxpayers are unlikely to pass in the current political environment, they reveal future tax policy priorities.
- Proposed legislation such as the Getting Rid of Abusive Trust Schemes Act and the Billionaires’ Income Tax Act could reshape wealth transfer planning.
- Future tax policy could limit the ability of high-income and high-net-worth taxpayers to take advantage of popular tax planning techniques such as qualified small business stock (QSBS), 1031 exchanges, etc.
Federal tax proposals aimed at high-net-worth taxpayers may not become law in the near term, but they offer a clear view into the planning strategies lawmakers are scrutinizing.
Many recent federal proposals focus less on small technical changes and more on broad policy themes. For high-net-worth individuals, family offices, business owners, trustees, and advisors, that distinction matters. Individual bills may stall, change, or disappear, while the underlying ideas can return when political control, budget pressures, or legislative priorities shift.
The clearest signal is where policymakers are concentrating their attention: wealth transfer planning, tax burden shifting, deferral opportunities, and wealth tax concepts. Understanding those themes can help you identify which planning areas may need closer review before future proposals gain traction.
Key areas to watch include
What limits to wealth transfer planning are being proposed?
Several federal proposals take aim at planning techniques that high-net-worth families have used for years to transfer appreciation, manage estate tax exposure, and structure family wealth. While these proposals don’t appear likely to become law soon, they show continued interest in narrowing the gap between economic wealth transfer and taxable recognition.
Getting Rid of Abusive Trust Schemes Act
The Getting Rid of Abusive Trust Schemes Act, also referred to as the GRATs Act, would directly affect grantor retained annuity trusts (GRATs). A GRAT generally allows a grantor to transfer assets into a trust while retaining annuity payments for a set term. If the assets outperform the assumed interest rate, the excess appreciation may pass to beneficiaries free of estate tax.
The GRATs Act would change several features that make GRAT planning attractive.
Proposed GRAT limits would eliminate
- Short-term rolling GRATs by requiring a minimum 15-year GRAT term
- Extremely long-term (99-year) GRATs by capping the maximum term at the annuitant’s life plus 10 years
- Decreasing annuity payments
- Zeroed-out GRATs by requiring a minimum gift tax value equal to the greater of 25% of the fair market value (FMV) of transferred assets or $500,000
For taxpayers using GRATs to move appreciation outside their taxable estates, these changes would make GRAT planning less flexible and less likely to achieve transfer savings.
Grantor trust transactions
The GRATs Act would also reach beyond GRATs. Under the proposal, transfers for consideration between a grantor and a grantor trust would generally be treated as a sale or exchange. That matters because current planning often treats sales between a grantor and a grantor trust as disregarded for income tax purposes.
This change could affect common planning strategies, including sales to intentionally defective grantor trusts (IDGTs) or spousal lifetime access trusts (SLATs). If these transactions became taxable events, significant built-in gain could be recognized at the time of transfer, thus reducing the transfer tax benefits of such planning.
The proposal would also treat income tax paid by the grantor on the trust’s income as a gift unless the trust reimburses the grantor in the same year. Currently, a grantor’s payment of income tax on behalf of the trust is not a taxable gift. This helps reduce the size of the taxable estate and effectively allows the trust’s assets to grow income tax-free. Eliminating this “tax burn” and effectively shifting the tax burden to the trust would reduce the wealth transfer benefits from such planning.
Federal Billionaires Income Tax Act
The Federal Billionaires Income Tax Act would also affect wealth transfer planning for applicable taxpayers. Applicable taxpayers are individuals or trusts that pass one of two tests for each of the three immediately preceding tax years: 1) the income test (adjusted gross income (AGI) of $100 million for all taxpayers and $50 million for married filing separate), or 2) the asset test (aggregate value of covered assets exceeds $1 billion for all taxpayers or $500 million if married filing separate).
Under the proposal, gifts, bequests, and transfers in certain trusts would generally require gain recognition. Grantor trusts, other than revocable trusts, would also be covered. This would represent a major shift from current planning approaches that often defer gain recognition until a later sale. It would also reduce the benefit of gifting appreciated assets to trusts for estate planning purposes.
The proposal would also include a dynasty trust rule requiring applicable trusts to treat property as sold within a 90-year time frame if the property hasn’t been taxed sooner.
Together, the GRATs Act and the Federal Billionaires Income Tax Act take aim at many of the fundamental wealth transfer techniques currently used by high-net-worth individuals and their advisers. Should one or more of these proposals become law, it would rewrite the tax planning playbook. Going forward, old wealth transfer techniques would need to be adapted for the new environment. Given that existing structures would likely be grandfathered at the time of enactment, it suggests clients who act now may be better positioned in the long term.
How could tax burden shifting affect high-income taxpayers?
Another major theme is tax burden shifting. These proposals generally pair tax relief for low- and middle-income households with higher taxes on high-income individuals, corporations, stock buybacks, or other targeted sources of revenue.
Keep Your Pay Act
The Keep Your Pay Act would significantly increase the standard deduction, including a proposed $75,000 standard deduction for married filing jointly taxpayers. It would also increase the Child Tax Credit.
The proposal would pay for those changes through revenue raisers aimed at higher-income taxpayers and corporations.
Proposed revenue raisers under the Keep Your Pay Act
- Closing tax preferences described as ultra-wealthy loopholes
- Raising the corporate tax rate
- Increasing taxes on stock buybacks
The policy goal is straightforward: reduce federal income tax exposure for a broad group of taxpayers and shift more of the funding burden to corporations and wealthier taxpayers.
Working Americans’ Tax Cut Act
The Working Americans’ Tax Cut Act would create an alternative maximum tax for low- and middle-income individuals. The proposal would provide an inflation-adjusted cost-of-living exemption for single taxpayers with modified adjusted gross income (MAGI) below $46,000 and married filing jointly taxpayers with MAGI below $92,000.
It would also cap income taxes for certain single taxpayers with MAGI up to $80,500 and married filing jointly taxpayers with MAGI up to $161,000.
To pay for those tax cuts, the proposal would add a new inflation-adjusted surcharge on high-income individuals.
Proposed high-income surcharge
- 5% of MAGI from $1 million to $2 million
- 10% of MAGI from $2 million to $5 million
- 12% of MAGI above $5 million
High-income surcharges have become a regular feature of many state income tax regimes over the past decades. While the federal income tax currently features a progressive structure, surcharges applicable to certain higher AGI thresholds would be a new change in modern tax history. For high-income taxpayers, the planning implications could be significant. A surcharge based on MAGI can reach wages, business flow-through income, capital gains, dividends, retirement distributions, and other taxable items. It can also create pressure around the timing of income recognition, liquidity events, bonus payments, business sales, and investment transactions.
High-income surcharges would also likely not face the same level of judicial scrutiny as a wealth tax, making them easier to enact.
Which deferral opportunities could face new limits?
Limits on deferral represent another important theme. Deferral has long played a major role in tax planning because delaying recognition can preserve cash flow, support reinvestment, and give taxpayers more control over recognition timing. Recent proposals show growing interest in restricting deferral opportunities for taxpayers above certain income or wealth thresholds.
Federal Billionaires Income Tax Act
The Federal Billionaires Income Tax Act would reduce or recapture several deferral opportunities for applicable taxpayers (defined earlier). Certain disregarded non-recognition events, including Section 351(a) corporate contribution transactions and Section 1031 like-kind exchanges, would be treated as taxable events requiring gain or loss recognition.
Proposed deferral limits for applicable taxpayers under the Federal Billionaires Income Tax Act
- No Section 1202 QSBS exclusion for stock acquired after September 17, 2025
- No deferral election for Qualified Opportunity Fund (QOF) investments after September 17, 2025
- Subject to an additional recapture charge on non-qualified deferred compensation income
- Additional taxes on severance payments
- Additional taxes on private placement life insurance or annuity contracts
For founders, executives, real estate investors, private company owners, and taxpayers who meet the definition of applicable taxpayer, these changes could limit their ability to use various deferral strategies. A company founder may be watching Section 1202 treatment before an exit. A real estate investor may be evaluating a Section 1031 exchange. An investor with a large capital gain may be considering a QOF investment.
Equal Tax Act
The Equal Tax Act would limit preferential rates on qualified dividends and capital gains to taxpayers with income below $1 million. For taxpayers above that threshold, the proposal would reduce the benefit of long-term capital gain and qualified dividend treatment.
The Equal Tax Act would also require gain realization upon gift or death, which would limit the current benefit of stepped-up basis at death. That change would create a major planning shift for families holding appreciated assets, including business interests, real estate, and investment portfolios.
Proposed limits under the Equal Tax Act
- Limit preferential rates for qualified dividends and capital gains to taxpayers with income below $1 million
- Require gain realization on gifts and at death
- Limit Section 1031 gain deferral to $500,000 per property
- Create a $1 million lifetime limit on Section 1031 gain deferral
- Limit Section 199A qualified business income deductions to taxpayers with income below $1 million
For high-income business owners and investors, the Equal Tax Act would make income thresholds more important in planning. It could also affect the timing of gifts, asset sales, exchanges, and business income recognition.
Protecting Proper Life Insurance from Abuse Act
The Protecting Proper Life Insurance from Abuse Act would target certain private placement life insurance and annuity arrangements. Under the proposal, certain private placement policies would no longer be treated as life insurance or annuity contracts.
That change would remove the tax-deferred buildup inside affected policies. For high-net-worth taxpayers using private placement structures as part of investment, estate, or asset location planning, the proposal could significantly change the after-tax economics.
A broader challenge to tax deferral
The common thread across the Federal Billionaires Income Tax Act, the Equal Tax Act, and the Protecting Proper Life Insurance from Abuse Act is that lawmakers are questioning whether high-income or ultra-high-net-worth taxpayers should receive the benefits of deferral or preferential tax treatment under current law. Many in Congress have expressed concern with the buy, borrow, and die strategies which lean heavily on tax deferral and the basis step-up to reduce or eliminate tax. There’s a sense these taxpayers benefit disproportionately from such strategies, thus future legislation could seek to income test popular deferral strategies.
What would a federal wealth tax proposal mean for ultra-high-net-worth taxpayers?
Wealth tax proposals are the most direct expression of the current focus on high-net-worth taxation. These proposals vary widely, but they generally aim to tax accumulated wealth, unrealized appreciation, or annual increases in asset value rather than waiting for a traditional realization event, such as a sale.
Billionaires Income Tax Act
The proposal’s application is not limited to the individuals discussed above. It would also apply to certain trusts with either $10 million of income before distribution deductions or assets exceeding $100 million for each of the three immediately preceding tax years. Certain charitable trusts would be excluded.
The proposal would require covered taxpayers to mark tradable assets to market annually and recognize gain or loss as long-term capital gain or loss, unless another rule requires different treatment. Non-tradable assets, such as real estate or private business interests, would be subject to an interest charge on tax deferral. Covered taxpayers could elect to pay the first-year tax liability over five years.
This proposal is especially notable because it blends wealth tax concepts with income tax mechanics. Rather than imposing a simple net-worth tax, it would require taxable recognition tied to FMV, even without a sale of tradable assets.
Ultra-Millionaires Tax Act
The Ultra-Millionaires Tax Act would impose a 2% annual wealth tax on households and trusts with net worth over $50 million. Taxpayers with net worth above $1 billion would face an additional 1% surcharge, bringing the total tax rate to 3%.
The proposal also requested a 30% audit rate for covered taxpayers, signaling that enforcement would be central to the policy design.
Make Billionaires Pay Their Fair Share Act
The Make Billionaires Pay Their Fair Share Act would impose an annual 5% tax on any individual or trust whose net assets exceed an inflation-adjusted $1 billion threshold as of the last calendar day of the year.
The proposal would also require information reporting to create a wealth registry of assets subject to the tax. The wealth tax wouldn’t be deductible from income tax.
Donald J. Trump Wealth Tax Act of 2026
The Donald J. Trump Wealth Tax Act of 2026 would impose a one-time 14.25% wealth tax on individuals and trusts with net worth exceeding $10 million.
Unlike annual wealth tax proposals, this bill would apply once. Still, it reflects the same broader policy interest in taxing accumulated net worth rather than waiting for income realization or asset sales.
Practical and legal hurdles to these federal tax proposals
These proposals raise practical challenges. Annual taxation of unrealized gains or net worth requires valuation, liquidity planning, reporting systems, and rules for losses. Tradable securities may be easier to value, but private business interests, real estate, artwork, carried interests, and trust assets can create more complexity. Trusts may also face special exposure because several proposals apply not only to individuals but also to trusts that meet income or asset thresholds.
Constitutional questions add another layer of uncertainty. The U.S. Supreme Court’s decision in Moore v. United States upheld the mandatory repatriation tax by treating it as a tax on income realized by a corporation and attributed to shareholders. The decision didn’t broadly approve a federal wealth tax or settle whether Congress can tax unrealized appreciation without realization. That leaves wealth tax proposals facing both political and legal hurdles.
For ultra-high-net-worth taxpayers, the immediate takeaway is less about imminent enactment and more about visibility. These proposals show that policymakers are increasingly focused on unrealized appreciation, trust-held wealth, and the ability to defer recognition across generations. Even proposals with low, near-term odds can shape future negotiations, budget proposals, campaign platforms, and state-level tax discussions.
To stay up to date on the latest bill status, effective dates, and sponsor information, visit the Congress.Gov webpage here.
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