The Biden administration’s recent tax proposals are being framed as a crackdown on the ultra‑wealthy, but the substance of the legislation points to a different target: high‑earning individuals whose ordinary income already sits in the top brackets—often called the “working rich.”
What the proposals actually contain
- Unrealized capital‑gains tax – A levy on the appreciation of assets that have not been sold, effectively taxing wealth that remains “on paper.”
- Step‑up basis retention – The current rule that allows heirs to inherit assets at the market value at the date of death would stay in place, preserving the “step‑up” benefit for estates.
- Carried‑interest reform – Adjustments that would tighten the preferential treatment of private‑equity and venture‑capital earnings, making those gains subject to higher ordinary‑income rates.
- Increased enforcement budget – More IRS resources would be directed toward individuals and mid‑size businesses rather than the handful of billionaires who already pay high effective rates.
Who is likely to feel the impact
- Seven‑ to eight‑figure earners – Professionals, consultants, e‑commerce owners, crypto traders, and other high‑income earners making $1 million–$10 million a year.
- Businesses with modest finance teams – Companies that cannot easily absorb the additional compliance burden of detailed reporting on every bank account and transaction.
- People who rely on capital‑gains income – Those who sell businesses, stocks, or crypto and currently benefit from lower capital‑gains rates compared with ordinary income.
The proposals would push marginal tax rates for this group into the 45 %–56 % range in some jurisdictions, comparable to the rates already faced by many high‑income earners in states like California or New York.
How this differs from a true wealth tax
- No annual tax on net worth is being introduced; the focus remains on income and realized/unrealized gains.
- The step‑up basis—the primary tool that shields inherited wealth from capital‑gains tax—remains unchanged, meaning heirs still avoid large tax bills on appreciated assets.
- The carried‑interest changes primarily affect private‑equity and venture‑capital managers, not the handful of billionaires who already pay significant taxes.
Historical context
- The Alternative Minimum Tax (AMT) once targeted a narrow income band but eventually ensnared many middle‑class taxpayers after thresholds were not adjusted.
- Recent tax reforms have repeatedly offered favorable treatment to large corporations, while ordinary high earners have seen fewer reliefs.
Offshore wealth and the Pandora Papers
- A small number of Americans were named in the Pandora Papers, revealing offshore holdings of foreign politicians rather than U.S. billionaires.
- Modern anti‑money‑laundering rules (e.g., FATCA) and heightened IRS enforcement make it increasingly difficult to hide substantial wealth abroad.
Practical considerations for high‑income individuals
- Review residency and citizenship options – Obtaining a second passport or establishing tax residency in a jurisdiction with lower personal‑income tax can reduce exposure.
- Structure assets legally offshore – Use compliant entities (e.g., International Business Companies, trusts) to hold investments, ensuring proper reporting on Forms 8938 and FBAR.
- Plan for capital‑gains timing – Align asset sales with years of lower ordinary income or consider installment sales to spread tax liability.
- Monitor legislative updates – The exact thresholds and rates are still being debated; staying informed can prevent surprise liabilities.
- Maintain thorough documentation – Detailed records of all transactions, foreign accounts, and asset valuations will ease compliance and reduce audit risk.
Bottom line
While the political narrative emphasizes taxing the “super‑rich,” the concrete provisions of the current tax agenda are aimed at the high‑earning, middle‑class segment that already faces substantial tax burdens. For those earning seven‑ to eight‑figure incomes, the combination of higher marginal rates, expanded IRS enforcement, and new rules on unrealized gains could meaningfully affect after‑tax cash flow. Proactive tax planning—potentially involving offshore structures, residency changes, and careful timing of asset disposals—offers a legal avenue to mitigate the impact of these proposals.
