Will Taxes Rise for the Wealthy?

The U.S. House Ways & Means Committee recently approved a package of tax increases on the wealthy to help fund a $3.5 trillion “Build Back Better Act,” an economic package that includes expanded Medicare, free community college, universal prekindergarten, and more.

Among other things, the House proposal would:

  • Raise the top individual tax rate to 39.6% after it was reduced to 37% in the 2017 Tax Cuts and Jobs Act;

  • Apply a 3% surtax on incomes higher than $5 million;

  • Raise the long-term capital gains tax rate1 to 25% for individuals earning more than $400,000 (couples more than $450,000).

The points below represent the House Ways & Means Committee’s starting point with regard to tax increases. Importantly, the entire bill, including the proposed tax increases, is very early in the legislative process and is therefore almost certainly going to change significantly. The Senate could take a different approach. Provisions could be dropped or altered.

For one thing, if the $3.5 trillion package has to be significantly reduced in size and scope in order to pass the 50-50 Senate—a strong possibility—then less revenue would need to be raised by the tax increases, which would mean some provisions outlined below could be eliminated or revised.

Possible strategies for investors to consider

A wait-and-see approach is best right now. However, if you’re concerned about the potential ramifications of the proposed changes, know that there are strategies that can be used to deal with tax changes, if they occur. Here are some to keep in mind: