Three tax-the-rich proposals Democrats could revive in the new Congress

Sen. Ron Wyden, D-Ore., is set to retake control of the Senate Committee on Finance after Democrats' midterm victories, and he has put billionaires on notice. Three tax proposals targeting the wealthy are already before the committee: closing the carried-interest tax break, taxing large trust assets, and curbing the "buy, borrow, die" strategy.

"On taxes, the committee will redouble its efforts to ensure billionaires pay their fair share and hold tax cheats accountable," Wyden said in a statement Wednesday morning.

Tax lawyers told CNBC the measures are unlikely to become law because Democrats did not win enough seats to overcome a veto from President Donald Trump. But they said the proposals are worth monitoring because they shape the party's agenda heading into the next presidential election.

Carried interest

In April, Wyden and Sen. Angus King, I-Maine, introduced the Ending the Carried Interest Loophole Act. Under current law, fund managers can have a share of a fund's profits taxed at the lower capital-gains rate if the investments are held for at least three years. The bill would tax investment profits as ordinary income and require managers to recognize and pay tax on deemed compensation annually rather than deferring taxes until the fund realizes income.

Joshua Odintz, a Holland & Knight partner and former tax counsel at the Treasury and the Senate Committee on Finance, said lawmakers on both sides of the aisle have proposed changing carried-interest taxation for nearly two decades, and President Trump criticized the provision during his 2016 campaign. Odintz expects more scrutiny as Congress faces pressure to shore up the Social Security trust fund, which is expected to run out of reserves by the end of 2032. He thinks the break is more likely to be eliminated as part of a budget reconciliation bill than as a standalone measure.

Trust assets

Sen. Patty Murray, D-Wash., introduced the Fair Trusts for Fiscal Responsibility Act, which would set a graduated annual tax on trust assets exceeding $50 million, with the rate rising to 3% for assets above $1 billion. It would also create a withholding-credit system: taxes paid each year would be tracked in an account and credited against estate or generation-skipping taxes when assets are later transferred or the trust ends, with unused credits refundable.

David Blum, partner and chair of Akerman's national tax practice group, said the bill should be watched because it would "fundamentally change estate planning for ultra-high-net-worth individuals" if it gains traction. Justin Miller, partner and national director of wealth planning at Evercore Wealth Management, said he is skeptical it would pass, and that the U.S. might instead follow the U.K., which levies an inheritance tax every 10 years, and Canada, which imposes a 21-year rule on most personal and family trusts.

'Buy, borrow, die'

Sen. Ruben Gallego, D-Ariz., introduced the Senate's ROBINHOOD Act in June. It would make ultra-rich borrowers pay capital-gains taxes on selected long-term assets they borrow against, applying to individuals with at least $1 billion in assets or more than $100 million in annual income, and only when the assets' unrealized gains 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 with income over $400,000, exempting several types of loans including mortgages and margin loans.

Miller said these bills are narrower and far easier to implement than sweeping wealth tax proposals, giving them more realistic odds of passing.

While tax policy gridlock is the likely outcome for the next two years, Odintz advised high-net-worth taxpayers to engage with Wyden and his staff now rather than later.

Source: CNBC.