“Tax the Rich” has become a political rallying cry in recent years, igniting recent proposals for new taxes on income, overall wealth and capital gains, among many other possible hikes.

The Biden administration’s latest budget proposal includes a lot of original items that didn’t ultimately make it into the late Build Back Better Act. Rachel Efthemes, partner at Mazars in Edison, N.J., said these are some of the proposals that would potentially affect the wealthy:

• The highest ordinary individual income tax rate jumping from 37% to 39.6%.
• The highest preferential tax rate on long-term capital gains and qualified dividends rising from 20% to as much as 39.6% for taxpayers with taxable income exceeding $1 million.
• Changes to income, estate and gift tax rules for certain grantor trusts that would increase taxes for wealthier taxpayers transferring assets.

“[The] consensus is that these proposals are unlikely to be enacted as currently proposed and, if anything was passed, it would be much less impactful,” Efthemes said.

“Most ‘tax the rich’ legislative changes—particularly the latest proposals on the annual 20% minimum tax on households worth more than $100 million—impact very few households into actionable tax planning,” said wealth advisor Lance Sherry of Chicago-based Kovitz.

It's been hard to get a grasp on all the tax hike proposals coming out of Washington, D.C., advisors say.

“Tax law changes aren’t new. What is new is the volume of proposals out there, and how quickly it changes,” said Alvina Lo, chief wealth strategist at Wilmington Trust in New York. “With all the different proposals floating around, it’s very difficult to keep up and keep track of everything,”

More unlikely—and more dramatic if it does pass—is the wealth tax, “an entirely different tax system and regime,” Lo said. “That will bring vast changes to the way the wealthy invest and hold their wealth.”

Sherry added that “the majority of our clients are more concerned with inflation, rising interest rates and market performance over legislative tax proposals.”

But he said clients do worry when proposals include elimination of stepped-up basis, he said.

“Most clients view stepped-up basis as a major avenue to avoid capital gains taxes, especially as they begin to get near their mortality age,” he said. “Elimination of stepped-up basis would have a major impact to client’s capital gains taxes planning, as some of those gains might make more sense to be accelerated in comparison to holding until death.”

Inherited IRA distributions under the latest rendition of the Setting Every Community Up for Retirement Enhancement (SECURE) Act are another potential trouble spot. “Under SECURE, it was generally understood that clients who inherited an IRA had up to 10 years to distribute the entire value of the account, which allowed for some tax planning,” Sherry said. “SECURE Act 2.0 has muddied the waters.”

Even if passed, the proposals could face a rocky legal road. “Persons likely to be affected by the various wealth tax proposals should understand that any legislation to this end would be aggressively challenged in federal court. The 16th Amendment permits Congress to levy taxes on income earnings. It does not permit un-apportioned direct taxes on wealth itself,” said Phillip W. Magness, director of research and education and senior research fellow at the American Institute for Economic Research in Great Barrington, Mass. “Given the current Supreme Court, it’s almost certain that a measure of this type would be ruled unconstitutional.

“A wealth tax is essentially uncharted territory in the United States. Apart from the constitutional questions, we know that it would involve unprecedented levels of intrusion into personal financial privacy,” Magness said. “Wealth—and particularly unrealized earnings from personal holdings—is both difficult to accurately measure and constantly in flux. What we do know is that wealth taxes have largely proven disastrous in other countries that tried them.”

“On the practical level, proposals that will simply accelerate what will sunset from the Tax Cuts and Jobs Act in 2017 will most likely have the most impact, simply because it’s most likely to pass and become law,” Lo said. “If you had planned to take certain actions anyway because it’s good for the long term, then do it now. Don’t wait for certainty in the law, because you’re likely not going to get it.”