Equal Tax Act

The Equal Tax Act aims to change how the federal government taxes investment income for the wealthiest Americans. Currently, long-term capital gains and dividends are often taxed at lower preferential rates (typically up to 20%) compared to the higher marginal rates applied to ordinary wages. This bill proposes to eliminate those lower rates for individuals with annual incomes exceeding $1 million, effectively requiring them to pay the same top tax rate on their investments as they would on a standard paycheck.

Beyond adjusting tax rates, the legislation seeks to close several tax provisions often used to reduce tax liability on large estates and real estate holdings. It would end the "stepped-up basis" rule, which currently allows heirs to avoid paying capital gains taxes on the increased value of inherited assets. Instead, the bill proposes treating these assets as if they were sold at the time of a gift or death, though it includes specific exemptions to protect family farms and small businesses.

Additionally, the bill would place a $1 million lifetime limit on the use of "like-kind exchanges," a strategy used to defer taxes on real estate gains by swapping one property for another. It also proposes limiting certain business income deductions for those earning over the $1 million threshold. If enacted, these changes would primarily affect high-income investors and are intended to align the taxation of wealth more closely with the taxation of labor.