Wealth managers with billionaire clients better get ready. Vice President Kamala Harris’s recently unveiled comprehensive tax proposal could be keeping them busy should she win in November.
As detailed in the New York Times and other news outlets, one of the key pieces to Harris’s proposal is a “billionaires-minimum tax,” which targets individuals with wealth exceeding $100 million. This measure would require such individuals to pay a minimum tax rate of 25 percent on a combination of their income and unrealized capital gains — that is, the increase in value of assets they own but have not yet sold.
The entire plan, which supports a number of tax increases proposed earlier by President Joe Biden, aims to generate nearly $5 trillion in additional revenue for the federal government over the next decade. Uncle Sam certainly needs the revenue boost considering the national debt has now surpassed $35 trillion and continues to climb.
Nevertheless, the addition of a tax on unrealized gains would be a landmark maneuver should it gain Congressional approval and be blessed by the Supreme Court. It would be a total gamechanger, according to financial advisors, with an impact that would expand far beyond the limited billionaire class.
Jon Foster, president and CEO at Angeles Wealth Management, believes a $100 million income threshold can easily be lowered over time. He views such a tax as a “slippery slope,” which could quickly capture a large swathe of taxpayers and would “basically throw after-tax management out the window.” Foster believes a more sellable program would be an annual net worth tax.
He also sees the wealthiest Americans as an easy target for politicians to attack first because their wealth has increased so dramatically over the last few decades. Not that they will have an easy time getting the ultra-rich to hand over those riches, of course.
“When Jeff Bezos builds a yacht for $500 million, and up until his divorce he paid almost zero income tax, people take notice,” said Foster. “The tax code is a way to control behavior, but everyone needs to realize that the richest people have the best tax lawyers.”
Danny McAuliffe, wealth advisor at Perigon Wealth Management, points out that such a tax would affect a very small part of the population – less than 10,000 - should it be passed and put into effect. As a result, he views this idea as a "non-issue" for most investors.
That said, if it were to be approved and implemented, McAuliffe says the current proposal includes timelines around tax payments and potential tax rebates. And should it comes to pass, liquidity planning in the context of paying these unrealized capital gains taxes within the timelines would be critical.
“At Perigon, we don't like when clients pay taxes on value they ultimately don't receive. It adds complexity to both planning around private company equity and long-term public holdings,” said McAuliffe.
“What will be interesting is how this impacts company valuations in the private markets,” added McAuliffe. “Companies may want to keep valuations lower for longer to minimize the taxes. Or it could push companies to go public sooner so that there is liquidity to pay the taxes. In addition, depending on how this tax is implemented, we may see an increase in tax-exempt trusts like Charitable Remainder Trusts, which are exempt from paying capital gains taxes.”
Meanwhile, Beth Bosworth, head of financial planning at Perigon Wealth Management, says financial planning software may not be intuitive or quick to adapt to tax law changes so there may be a need to check financial plans for accuracy.
“Advisors should expect to spend time updating financial plans of affected clients for some time after any new law is passed,” said Bosworth.
Finally, Daniel Lash, certified financial planner at VLP Financial Advisors, believes it would be extremely difficult to regulate this since there are so many variables that would go into it.
“Would the value of homes be included, and other property like yachts? Or is it just on invested assets?” asked Lash. “I also think it is unlikely that this could get passed if both the House and senate are not majority Democrat. And then the Democrats would have to face legal challenges of this type of tax being outside the scope of tax law under the Constitution. So it will be tough to get done.”
Stifel has paid or is on the hook for close to a staggering $200 million in damages and settlements to former clients of Chuck Roberts.
UBS also expanded in the Southeast with six advisors overseeing more than $2 billion, while Osaic lured a $300 million family-led practice from Wells Fargo's FiNet.
The new AI workspace rollout promises to automate the full advisor workflow just as third-party tools wage a turf war for central control of wealth firms' tech stacks.
Mega-RIA picks up $250M advisor, while three firms head for &Partners.
Advisors who wait for a wealth event to introduce themselves to the next generation are already too late.
Direct indexing is on pace to outgrow ETFs and mutual funds. Northern Trust's Ken Lassner explains why the advisors who get it wish they had started sooner.
As $84 trillion prepares to change hands, advisors who treat estate planning as peripheral are quietly building a sieve, not a book.
