This document is the Phase 1 PR-FAQ for the Fair & Simple Tax Act, focused on personal income and capital taxation. It is written in a working-backwards format to make the design goals, tradeoffs, and fiscal impacts explicit. Phase 1 is a standalone proposal, but it is designed to pair with Phase 2 (Social Security modernization) as part of a cohesive fiscal system.
| Press Release | Tenets | FAQs |
Part 1: The Big Picture
Part 2: Core Mechanics
Part 3: Closing Loopholes
Part 4: Impact on Innovation & Investment
Appendices
FOR IMMEDIATE RELEASE
The Fair & Simple Tax Act Simplifies the Tax Code, Closes Loopholes, and Makes the System Work Better for Ordinary Americans
Today, the Fair & Simple Tax Act (FSTA) is introduced as a focused reform of personal income and capital taxation. The Act modernizes the U.S. tax code by eliminating unnecessary complexity, closing long-standing loopholes, and creating a system that is easier to understand, harder to game, and more fiscally durable over time. The Fair & Simple Tax Act raises $200-310 billion annually by closing loopholes and broadening the tax base—without raising rates on ordinary income, closing 15-25% of the federal deficit gap while making the system simpler and fairer for working families.
Over decades, the tax code has accumulated layer upon layer of special rules, carve-outs, and parallel systems. While many of these provisions were created with good intentions, the result is a system that is difficult for taxpayers to understand, costly to comply with, and increasingly disconnected from its stated goals. Filing taxes has become unpredictable for ordinary households and arbitrage-driven for those with access to sophisticated planning.
The Fair & Simple Tax Act addresses this problem by simplifying the structure of personal taxation and broadening the tax base rather than relying on narrow fixes or symbolic changes. It removes overlapping systems like the Alternative Minimum Tax and the Net Investment Income Tax, replaces a patchwork of deductions and credits with simpler, more transparent mechanisms, and reforms capital gains taxation to better reflect lifetime outcomes rather than one-off transactions.
For most working families, this means a tax system that is more predictable and easier to navigate, with fewer hidden penalties and fewer incentives for financial engineering. The Act includes a straightforward, refundable child benefit that supports families building economic security, while avoiding sharp cliffs or complex eligibility rules.
For entrepreneurs and investors, the proposal preserves strong incentives to start companies, take risks, and invest for the long term, while reducing opportunities to reclassify income or defer taxes indefinitely. Capital gains remain taxed on realization, not on paper, but are treated more consistently across a lifetime, closing loopholes that disproportionately benefit a small number of very high-income households.
The Fair & Simple Tax Act is designed to be fiscally responsible. By broadening the base and simplifying the rules, it raises revenue in a more stable and predictable way, reducing reliance on temporary patches and narrow surtaxes. The proposal is revenue-positive from day one and contributes to a more credible path toward long-term budget sustainability. This Act is intentionally focused in scope. It addresses personal income and capital taxation and does not attempt to resolve every major fiscal challenge in a single step.
The goal of the Fair & Simple Tax Act is not to make the tax code perfect, but to make it legible, coherent, and honest about tradeoffs. By simplifying the system and aligning incentives with productive economic activity, the proposal aims to create a tax code that better serves taxpayers, policymakers, and the long-term health of the country.
Radical Simplicity: The tax code should be clearly explainable and, where possible, automated. If a provision cannot be understood without specialists, it does not belong. Simplicity reduces compliance costs, economic deadweight loss, and loopholes, while enabling more meaningful public debate about tradeoffs and priorities through a smaller set of transparent levers.
Fuel the Climb (Don’t Protect the Summit): The tax and entitlement system should reward work, entrepreneurship, and families building economic security, not financial engineering or the preservation of entrenched privilege. Fairness should be evaluated over a lifetime, reflecting modern, non-linear careers. Incentives should favor productive effort and broad-based upward mobility over rent-seeking or perpetual avoidance.
Fiscal Durability: The system must be fiscally responsible across economic cycles and demographic changes. Reforms should rely on broad bases, predictable revenue, and adjustable parameters that do not require reopening the system’s core structure. A durable system reduces reliance on temporary patches, political gimmicks, and crisis-driven overhauls while prioritizing the most effective path to long-term fiscal health.
The current personal tax system is complex, unpredictable, and increasingly gameable. It burdens ordinary filers with a maze of overlapping rules while leaving large gaps that sophisticated planning can exploit, especially for investment income and very high-wealth households. It also relies on narrow, temporary fixes rather than a stable base, making long-term fiscal planning harder.
This phase addresses those problems by simplifying the structure, closing the biggest avoidance channels, and making the revenue base more durable.
Note: How to Read the Specific Numbers in This Proposal
This proposal is primarily about structural reform, not locking in precise tax rates. The income and lifetime capital gains brackets shown below are initial calibrations meant to prove the system can work and to anchor the fiscal targets; they are not final numbers, but they are based on real estimates. Reasonable people can disagree on exact rates and cutoffs, yet any revisions must still meet the revenue and durability goals in Tenet 3. The intent is to make the levers transparent and modelable so debate stays focused on outcomes and calibration rather than defending a system that cannot be clearly understood, modeled, or tuned.
For most taxpayers, filing stays familiar but becomes fairer and simpler, while the largest loopholes used by ultra-wealthy families are closed.
| What Changes | Design Tenet | Fiscal Impact |
|---|---|---|
| INCOME TAXES | ||
| Current brackets are maintained and a new 45% top bracket is added for (incomes $1.5M+ Single / $3M+ MFJ); eliminates AMT and NIIT (details in Q6) | Radical Simplicity, Fiscal Durability | Raises $40–60B |
| CAPITAL GAINS | ||
| A new Lifetime Tax-Free Capital Gains Allowance ($1.5M single / $3M couples); progressive rates above based on lifetime gains (details in Q7) | Fuel the Climb (Don’t Protect the Summit), Fiscal Durability | Raises $50–80B |
| Stepped-up basis eliminated; death = realization event (details in Q12) | Fuel the Climb (Don’t Protect the Summit), Fiscal Durability | Raises $75–100B |
| Buy-borrow-die closed (details in Q11) | Fuel the Climb (Don’t Protect the Summit), Fiscal Durability | Raises $25–50B |
| QSBS eliminated; universal $1.5M allowance for all (details in Q17) | Radical Simplicity, Fuel the Climb (Don’t Protect the Summit) | Raises $10–20B |
| FAMILY BENEFITS | ||
| $4,000/child (max 3), fully refundable; phase-out starts at $150K married / $100K single + $25K per child (cap +$75K), ends at $500K married / $300K single (details in Q9) | Radical Simplicity, Fuel the Climb (Don’t Protect the Summit) | Net savings ~$50–60B (consolidates CTC + EITC + CDCC) |
| ESTATES | ||
| Estate exemption: $14M → $5M per person ($10M couples) (details in Q12) | Fuel the Climb (Don’t Protect the Summit), Fiscal Durability | Raises $50–65B |
| Trust income taxed annually; no exemption stacking via dynasty trusts (details in Q14) | Fuel the Climb (Don’t Protect the Summit), Fiscal Durability | Base-protecting (eliminates multigenerational deferral) |
| RETIREMENT (ROTH) | ||
| Income limits eliminated; cap raised to $15K/year; $2.5M contribution freeze; death = realization of gains (details in Q10) | Radical Simplicity, Fuel the Climb (Don’t Protect the Summit), Fiscal Durability | Raises $15–25B |
| TOTAL | Simpler, fairer, fiscally durable | Raises $200–310B annually |
Revenue ranges reflect expected behavioral and timing responses, not a purely static snapshot.
For taxpayers, this means no broad tax increase and an immediate deficit impact; the Fair & Simple Tax Act is revenue-positive from Day 1:
These gains cover the costs (~$30–40B for AMT/NIIT elimination) and include the child benefit consolidation savings, resulting in $200-310B net annual revenue.
This closes roughly 15-25% of the deficit gap. The remainder requires additional revenue measures and spending reforms; see the Fiscal Sustainability Summary in the Project Overview.
Bottom line: The Act is fiscally responsible and revenue-positive, but long-term balance requires parallel tax and spending discipline.
The current system’s complexity is a feature for those who can exploit it. FSTA simplifies the code by replacing narrow carve-outs with universal rules:
FSTA replaces this with clear, universal rules:
For typical filers, nothing changes structurally - you still file once a year with standard forms. But the system stops rewarding financial engineering and starts rewarding genuine value creation.
For most families, taxes go down or stay flat; the increases are concentrated at the very top.
The pattern:
In plain terms:
A nurse or teacher with kids saves money through the child benefit. A small business owner with capital gains under the lifetime allowance pays nothing on those gains. A nine-figure fortune pays more.
For most earners, brackets stay essentially the same and filing is simpler because AMT/NIIT disappear; only very high earners see a new 45% bracket.
Income tax bracket thresholds (indexed annually for inflation)
| Filing Status | 10% | 12% | 22% | 24% | 32% | 35% | 37% | 45% |
|---|---|---|---|---|---|---|---|---|
| Single | $0–$12K | $12K–$47K | $47K–$100K | $100K–$190K | $190K–$240K | $240K–$610K | $610K–$1.5M | $1.5M+ |
| Married filing jointly | $0–$24K | $24K–$94K | $94K–$200K | $200K–$380K | $380K–$490K | $490K–$730K | $730K–$3M | $3M+ |
| Head of household | $0–$17K | $17K–$63K | $63K–$160K | $160K–$290K | $290K–$365K | $365K–$670K | $670K–$2.25M | $2.25M+ |
Key changes:
Brackets stay stable to prioritize predictability while loopholes are closed. See Q8 for how both income and capital gains brackets are calibrated over time.
For all investors, the first $1.5M of lifetime gains are tax-free under the Lifetime Tax-Free Capital Gains Allowance ($3M married filing jointly) and long-term holdings are still rewarded. FSTA sets capital gains rates by Cumulative Lifetime Capital Gains — the running total of realized gains — to ensure extreme wealth does not pay lower rates than labor. Throughout this document, “lifetime capital gains” refers to the same tracked cumulative total, whether described as the allowance or cumulative gains. At $100M+ in lifetime gains, capital gains rates converge with ordinary income (45%).
| Cumulative Lifetime Capital Gains | Marginal Capital Gains Rate |
|---|---|
| $0 – $1.5M | 0% |
| $1.5M – $3M | 15% |
| $3M – $10M | 20% |
| $10M – $50M | 27% |
| $50M – $100M | 32% |
| $100M+ | 45% |
Key rules:
If the allowance is adjusted in the future, changes apply prospectively: increases add headroom for everyone; decreases apply only to gains realized after the change (no retroactive clawback). Bracket thresholds are expected to be indexed to inflation over time.
The allowance is indexed to inflation. Capital losses can offset gains but do not replenish the allowance. The allowance is per individual and becomes portable prospectively upon marriage; it does not retroactively pool pre-marriage gains.
This structure protects ordinary wealth-building while ensuring very large gains contribute more.
For the most part, there are no changes to how capital losses, interest and dividends are taxed
These principles apply to both income tax brackets and lifetime capital gains brackets. The brackets shown here are initial calibrations. Phase 1 is focused on locking in structure, not final rates, and reasonable disagreement on exact bracket levels is expected. The system is intentionally designed to allow iteration without reopening core structural decisions over time, with wealth disparity treated as a primary calibration input.
Bracket calibration may be adjusted over time based on a small set of explicit indicators, including:
Phase 2 Social Security reform will inform future bracket calibration, and final tuning should consider the full tax and benefit system.
Structural elements are intentionally hard to change. Rates and thresholds should be reviewed periodically. Adjustments should be incremental and transparent. The objective is long-term system stability rather than short-term optimization.
This is a simple universal benefit that replaces the CTC, EITC, and Child and Dependent Care Credit (CDCC) with a predictable $4,000-per-child benefit and automatic delivery, with no work tests or cliffs.
Phase-out formula (for 1–3 kids):
Budget impact (illustrative): Current combined spending is ~$270–280B/year (CTC + EITC + CDCC). The proposed unified benefit is ~$220B/year, for ~$50–60B/year in net savings.
Note: Budget figures are illustrative ranges based on public aggregates; final calibration is a legislative choice.
This removes benefit cliffs, treats stay-at-home and working parents equally, and makes support predictable. Distributional impacts are detailed in Appendix B.
For savers, this means broader access to ROTHs and clear limits, while mega-account abuse is closed. The Act makes four changes to ROTH IRAs:
These reforms close the “Peter Thiel” mega-ROTH loophole while protecting ordinary savers. Revenue: $15–25B annually. There are no changes to Traditional 401(k)s, Traditional IRAs, SEP IRAs, or SIMPLE IRAs.
For most taxpayers, ordinary borrowing is unchanged; the only impact is on ultra-wealthy strategies that live tax-free on loans. Buy-borrow-die lets ultra-wealthy households borrow against appreciated assets, live on loans, and erase gains at death via stepped-up basis. FSTA closes the loop with a deemed-sale rule for asset-backed borrowing and by ending stepped-up basis.
New rule (asset-backed borrowing):
Safety valve: A “deemed sale” only only triggers once the loan amount (combined with previous gains) exceeds the $1.5M exceeds your remaining Lifetime Tax-Free Capital Gains Allowance.
What is not affected: ordinary business loans, mortgages, and borrowing for reinvestment or expansion. The rule targets personal-consumption borrowing against appreciated collateral, using lender-reported loan purpose and existing enforcement doctrines.
Bottom line: You can still borrow, but you cannot live tax-free on appreciation and wipe the gain at death.
Case study: Billionaire Borrower.
For most families, nothing is owed at death and heirs receive a clean basis; only large unrealized gains face tax. Under the Fair & Simple Tax Act, basis step-up is eliminated and death becomes the final realization event (the Final Sync) - unrealized capital gains are taxed on the final return using the same lifetime capital gains system, and heirs receive a clean basis at the value at death.
How the allowance applies:
Example (typical estate): $400K in unrealized gains with an unused $1.5M allowance → $0 tax.
Illiquid assets: 15-year payment option at low interest to avoid forced sales of farms, businesses, or real estate.
Bottom line: Most families owe nothing; large fortunes pay deferred tax and heirs start with a clean basis.
For typical families, legitimate estate planning still works; the change is that appreciation can’t escape tax forever. The Act eliminates the underlying conditions that make these techniques work - without banning each vehicle. GRATs, dynasty trusts, valuation discounts, and similar tools rely on indefinite deferral, stepped-up basis at death, and high estate exemptions.
FSTA changes the foundation:
Bottom line: Trusts and planning tools can still be used for governance and protection, but appreciation cannot escape taxation indefinitely.
No. For families using trusts, you can still protect assets and manage distributions, but you cannot use trusts for permanent tax deferral.
How trusts are taxed:
Trusts remain useful for governance, creditor protection, and controlled distributions - not for avoiding tax forever.
No. For most homeowners, nothing changes in practice - the $1.5M Lifetime Capital Gains Allowance covers typical home-sale gains and treats housing the same as other long-term saving.
Example: Buy at $250K, sell at $650K → $400K gain, $0 tax. You still have $1.1M of lifetime allowance left for future gains.
The allowance is designed to cover multiple moves over a lifetime; most households never reach $1.5M in total housing gains.
Why replace the current exclusion? The current rule privileges homeowners, encourages tax-driven housing decisions, and requires ownership/use tests. A single lifetime allowance is simpler and neutral across homes, stocks, and businesses.
Bottom line: Most home sales remain tax-free, with fewer special rules and fairer treatment across asset types.
For most funds and investors, there’s no new special rule to track; carried interest is neutralized automatically. At $100M+ in lifetime capital gains, the rate converges to 45% - the same as the top ordinary income rate - so re-labeling labor income as capital gains no longer helps.
Why this works:
Example: $200M in lifetime carry → gains above $100M taxed at 45%, yielding an effective rate in the low 40s%.
Bottom line: Carried interest is closed by design, not by creating a new carve-out.
No. For founders, long-term gains are still rewarded and the $1.5M lifetime allowance applies broadly. FSTA keeps long-term capital gains treatment, adds a $1.5M lifetime allowance, and taxes short-term trading as ordinary income. It replaces QSBS with a universal allowance that applies to all founders, regardless of entity type or industry.
Some large exits that currently qualify for QSBS will pay more, but the system is broader, simpler, and more predictable. Case studies are in Appendix B.
Bottom line: The Act rewards patient capital and innovation while eliminating narrow carve-outs that only some founders can access.
For almost everyone, this doesn’t apply; for those who expatriate, gains are taxed as if sold. Renouncing citizenship triggers the same rule as death: a mark-to-market tax on all gains, with the lifetime allowance and progressive capital gains rates.
Bottom line: Departure is taxed as if assets were sold. Payment relief prevents fire sales, existing reporting makes evasion difficult, and the fiscal risk is limited.
For taxpayers, this approach avoids annual asset valuations while still capturing extreme wealth. Wealth taxes have failed in most countries that tried them. France, Sweden, Austria, and others repealed their wealth taxes after discovering:
The Fair & Simple Tax Act achieves similar progressivity through realization events, including sales, death, borrowing, and expatriation, which are:
By taxing gains at realization with progressive rates (0% to 45%), eliminating stepped-up basis at death, and closing buy-borrow-die, we capture wealth accumulation without the administrative burden of annual valuations.
Bottom line: This approach is more durable, more enforceable, and learns from the failures of wealth taxes in other countries.
For taxpayers, this means the plan stays focused on personal taxation to maximize clarity, feasibility, and administrative simplicity. As a result:
Bottom line: Focus now is loophole closure and simplification; broader tax architecture changes are outside this Act’s scope.
For taxpayers, the timing finally supports real simplification. The code has hit a complexity ceiling, parallel systems (AMT, NIIT, deductions, carve‑outs) have become unmanageable, and public trust is eroding in a system that feels arbitrary and gamed. At the same time, automation and pre‑filled returns are now technically feasible - but only if the underlying rules are simplified. This proposal focuses on the foundation first: reduce complexity, close obvious gaps, and create a clearer base for future reforms.
No. This Act focuses narrowly on simplifying personal income and capital taxation. Social Security and payroll taxes raise distinct questions about demographics, benefits, and long-term solvency, and deserve a dedicated treatment. A follow-on proposal will address Social Security directly using the same tenets.
This Act is designed to stand on its own. It is also intended as one part of the Fair & Simple Tax Project, a broader effort to modernize the tax system over time. Future work may address payroll taxes and Social Security with the same emphasis on simplicity, fairness, and fiscal durability.
FSTA is revenue-positive from Day 1, raising $200-310B annually by closing loopholes. It requires no new taxes on ordinary income.
| Source | Current Revenue |
|---|---|
| Individual Income Tax | $2.2T |
| Payroll Tax (FICA) | $1.5T |
| Corporate Tax | $420B |
| Estate/Gift Tax | $35B |
| Other | $345B |
| Change | Annual Cost | Notes |
|---|---|---|
| Elimination of AMT and NIIT | -$30–40B | Simpler tax code; complexity savings offset some revenue loss |
| Total Annual Costs | -$30–40B |
| Change | Annual Revenue | Notes |
|---|---|---|
| 45% top bracket ($1.5M+ Single / $3M+ MFJ) | +$40–60B | Applies to ~0.1% of taxpayers; AMT/NIIT elimination simplifies compliance |
| Child benefit consolidation | +$50–60B | Consolidates CTC/EITC/CDCC (~$270–280B) into $4,000/child benefit (~$220B) |
| Capital gains: progressive rates above $1.5M allowance | +$50–80B | 6-tier lifetime system; protects small gains, taxes large accumulations |
| Stepped-up basis eliminated at death | +$75–100B | Unrealized gains taxed at death using lifetime allowance |
| Buy-borrow-die closed (asset-backed borrowing rule) | +$25–50B | Deemed sale when appreciated assets secure loans |
| QSBS eliminated; replaced with universal $1.5M allowance | +$10–20B | All founders/investors get same allowance; no more $10M+ exclusions |
| Estate tax reform ($14M → $5M exemption) | +$50–65B | ~30K estates taxed vs. ~4K currently |
| ROTH reforms (contribution cap, $2.5M freeze, death = realization) | +$15–25B | Closes “Peter Thiel loophole” while expanding access |
Note on scoring: Line-item estimates overlap (e.g., death as realization, no step-up, and buy-borrow-die). Totals are interaction-adjusted ranges that include conservative offsets and are not simple sums.
| Total Annual Gains | +$240–350B |
| Scenario | Annual Costs | Annual Gains | Net |
|---|---|---|---|
| Conservative | -$40B | +$240B | +$200B |
| Mid | -$35B | +$290B | +$255B |
| Optimistic | -$30B | +$340B | +$310B |
| Income Percentile | Representative Income | Current Effective Rate | Fair & Simple Rate | Change | Annual $ Change | Who Wins/Loses |
|---|---|---|---|---|---|---|
| Bottom 20% | $25,000 | 10.5% | 8.2% | -2.3% | -$575 | ✓ Wins |
| 20-40% | $45,000 | 14.8% | 12.5% | -2.3% | -$1,035 | ✓ Wins |
| 40-60% | $75,000 | 17.2% | 15.8% | -1.4% | -$1,050 | ✓ Wins |
| 60-80% | $125,000 | 19.5% | 18.9% | -0.6% | -$750 | ✓ Wins |
| 80-90% | $200,000 | 21.8% | 21.5% | -0.3% | -$600 | ✓ ~Even |
| 90-95% | $300,000 | 23.5% | 24.2% | +0.7% | +$2,100 | Pays more |
| 95-99% | $500,000 | 26.2% | 28.5% | +2.3% | +$11,500 | Pays more |
| Top 1% (99-99.9%) | $1.5M | 28.5% | 32.8% | +4.3% | +$64,500 | Pays significantly more |
| Top 0.1% | $5M | 29.8% | 35.2% | +5.4% | +$270,000 | Pays significantly more |
| Top 0.01% | $25M | 23.1% | 37.5% | +14.4% | +$3.6M | Pays dramatically more |
Note: Current effective rates include FICA, federal income tax, and account for common deductions/loopholes. Fair & Simple rates include income tax with no loopholes.
Key takeaways:
Bottom line: FSTA improves fairness and fiscal durability while simplifying compliance.
These case studies show simplified before/after calculations for representative taxpayers across the income spectrum.
| Case Study | Income/Gain | Current Law Effective Rate | FSTA Effective Rate | Change |
|---|---|---|---|---|
| Nurse + 1 Kid (HOH) | $75K | 7.5% | 4.9% | -2.6% |
| Family + 3 Kids | $140K | 6.5% | 2.2% | -4.3% |
| High Earner | $600K | 30.6% | 30.6% | 0% |
| Homeowner | $400K gain | 5.6% | 0% | -5.6% |
| Small Founder | $3M exit | 19.8% | 7.2% | -12.6% |
| Inherited Estate | $20M estate | 0% | 37.5% | +37.5% |
| Billionaire Borrower | $5M loan | 0% | 45.0% | +45.0% |
Pattern:
| Current Law | FSTA | Change | |
|---|---|---|---|
| Gross Income | $75,000 | $75,000 | - |
| Federal Income Tax | $7,660 | $7,660 | $0 |
| Child credits/benefits | -$2,000 | -$4,000 | -$2,000 |
| Net Federal Tax | $5,660 | $3,660 | -$2,000 |
| Effective Rate | 7.5% | 4.9% | -2.6% |
| Current Law | FSTA | Change | |
|---|---|---|---|
| Gross Income | $140,000 | $140,000 | - |
| Federal Income Tax | $15,073 | $15,073 | $0 |
| Child credits/benefits | -$6,000 | -$12,000 | -$6,000 |
| Net Federal Tax | $9,073 | $3,073 | -$6,000 |
| Effective Rate | 6.5% | 2.2% | -4.3% |
| Current Law | FSTA | Change | |
|---|---|---|---|
| Gross Income | $600,000 | $600,000 | - |
| Federal Income Tax | $183,582 | $183,582 | $0 |
| Net Federal Tax | $183,582 | $183,582 | $0 |
| Effective Rate | 30.6% | 30.6% | 0% |
| Current Law | FSTA | Change | |
|---|---|---|---|
| Home Sale Gain | $400,000 | $400,000 | - |
| Allowance Applied | -$250,000 | -$400,000 | - |
| Taxable Gain | $150,000 | $0 | -$150,000 |
| Capital Gains Tax | $22,350 | $0 | -$22,350 |
| Effective Rate | 5.6% | 0% | -5.6% |
Assumes no QSBS (common). FSTA applies a universal lifetime allowance.
| Current Law (no QSBS) | FSTA | Change | |
|---|---|---|---|
| Gain | $2,900,000 | $2,900,000 | - |
| Lifetime Allowance | N/A | -$1,500,000 | - |
| Taxable Gain | $2,900,000 | $1,400,000 | -$1,500,000 |
| Capital Gains Tax | $575,420 | $210,000 | -$365,420 |
| Effective Rate | 19.8% | 7.2% | -12.6% |
| Amount | |
|---|---|
| Unrealized Gain | $15,000,000 |
| Capital Gains Tax | $2,500,000 |
| Estate Tax | $5,000,000 |
| Total Tax | $7,500,000 |
| Heir Receives | $12,500,000 |
| Effective Estate Tax Rate | 37.5% |
Current law: step-up and a $14M exemption would likely result in $0 tax for a similarly sized estate.
Assumes the Lifetime Tax-Free Capital Gains Allowance is already fully used. The loan is secured by appreciated stock.
| Current Law | FSTA | Change | |
|---|---|---|---|
| Lifestyle Loan | $5,000,000 | $5,000,000 | - |
| Taxable Gain Triggered | $0 | $5,000,000 | +$5,000,000 |
| Capital Gains Tax | $0 | $2,250,000 | +$2,250,000 |
| Effective Rate | 0% | 45.0% | +45.0% |
Why: Under current law, borrowing against appreciated assets produces no taxable event. Under FSTA, the deemed-sale rule treats the borrowed amount as realized gain once the allowance is exhausted, so borrowing to fund consumption triggers tax at the top capital gains rate. Basis steps up by the borrowed amount to prevent double taxation on eventual sale. | Child benefit consolidation | +$50–60B | Consolidates CTC/EITC/CDCC (~$270–280B) into $4,000/child benefit (~$220B) |