Several U.S. senators have proposed new legislation in an effort to raise $3 trillion in tax revenue over the next decade.1 Called the Ultra-Millionaire Tax, this new proposed legislation comes in direct response to the economic turmoil Americans have experienced throughout the COVID-19 pandemic.
Senator Elizabeth Warren described the necessity for such revenue saying, “As Congress develops additional plans to help our economy, the wealth tax should be at the top of the list to help pay for these plans because of the huge amounts of revenue it would generate.”1
The majority of Americans would not see a direct impact from this proposed wealth tax. But for those it would affect, this could greatly increase their tax obligation in the future. If you’re concerned, here’s what you should know about this potential change.
What Is Being Proposed?
Several senators proposed the Ultra-Millionaire Tax Act on March 1, 2021. This tax legislation would impact 100,000 households, or those considered to be in the top 0.05 percent of wealth earners in America.1 More specifically, the Ultra-Millionaire Tax Act is a wealth tax that would affect those with a net worth of $50 million or more.
Affected ultra-high-net-worth families would be taxed as follows:
- Two percent annual tax for those with a net worth of $50 million to $1 billion.
- Three percent annual tax (two percent plus one percent surtax) for those with a net worth of $1 billion or more.
What Is a Wealth Tax?
With income tax, the individual is taxed on how much they made during the previous year in taxable income (such as a salary, retirement account withdrawals, interest, etc.).
Wealth tax, on the other hand, is an annual tax that is applied toward an individual’s actual net worth - as opposed to the income earned over that year.
Do Wealth Taxes Currently Exist?
Several states have proposed wealth taxes in the past. In 2020, California introduced a wealth tax for residents (and former eligible residents) with a net worth of $30 million or more. The proposed legislation, however, has not moved forward.
Several states currently have a “millionaire tax” implemented, which is based on an individual or family's taxable yearly income.
What Should Ultra-High-Net-Worth Families Do to Prepare?
Learning that you may be faced with an additional tax burden never feels good. But the reality is, there’s no guarantee of when, or if, this proposed legislation will be passed into law. Those concerned about the potential tax obligations should work with their financial planner or tax professional. Familiarize yourself with the details of the proposed wealth tax, as well as any anti-evasion and avoidance measures proposed as well.
Preparing yourself and your finances ahead of time may help ease potential tax burdens - or help you determine how you may be able to lower your tax obligation. Discuss your concerns with your trusted financial professional as you continue to monitor this proposed legislation.
Beacon Hill Private Wealth is an independent, fee-only, fiduciary investment advisor providing evidence-based wealth planning solutions that simplify our clients' financial lives. Founder Tom Geoghegan, CFP® CPWA® RMA® MBA is also a member of the National Association of Personal Financial Advisors (NAPFA).
Why work with a credentialed advisor? The Certified Private Wealth Advisor® (CPWA) certification, administered by the Investments & Wealth Institute®, is the standard for competence in the field of wealth management today. The advanced credential created specifically for wealth managers working with high-net-worth clients is focused on the life cycle of wealth—accumulation, preservation, and distribution. CPWA certified professionals are able to identify and analyze the unique challenges high-net-worth individuals face and understand how to develop specific strategies to minimize taxes, monetize and protect assets, maximize growth, and transfer wealth. The CPWA designation signifies that an individual has met initial and on-going experience, ethical, education, and examination requirements for the professional designation, which is centered on private wealth management topics and strategies. Fewer than 1% of financial advisors have achieved the CPWA certification.3
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