admin
A version of this article first appeared in CNBC’s Inside Wealth newsletter with Robert Frank, a weekly guide to the high-net-worth investor and consumer. Sign up to receive future editions, straight to your inbox. High earners would get a series of tax cuts in the latest House reconciliation plans , yet many could also be subject to a little-noticed tax hike that could limit their charitable giving and other deductions, according to experts. The language the House Ways and Means Committee released this week extends the 2017 tax cuts for high earners, including the lower top rate of 37%. The extended rates appear, at least for now, to table President Donald Trump ‘s suggestion to hike the top rate for those making more than $2.5 million. High earners and wealthy families also received some new, expanded benefits. The House text includes a permanent increase in the deduction for pass-through income to 23% from 20%. The rise means the effective top tax rate for pass-throughs will be about 28.5% compared with the top individual rate of 37%. A growing number of ultra-wealthy taxpayers now earn much their income from pass-throughs, sole proprietorships, S corps and other partnerships. The SALT changes will have less impact for those at the top. The House proposal calls for raising the cap on state and local tax deductions from $10,000 to $30,000, but only for those with modified adjusted gross income of $400,000 or less. For those earning above $400,000, the $30,000 cap starts phasing out, or declining, back down to $10,000. The most important tax change for the wealthy in the House proposal is the estate tax. Currently, estates worth up to $13.99 million (or couples with estates of up to $27.98 million) are exempt from the estate tax. The House committee proposes raising the exemption to $15 million, making it permanent and indexed for inflation, meaning it will keep rising over time. Tax advisors to the wealthy say making the rates and exemptions permanent will help eliminate some of the uncertainty in recent years around tax planning. “I’m all in favor of anything that provides certainty,” said David Handler, a partner in the trusts and estates practice group of Kirkland & Ellis LLP. “Just tell me what the rule is and don’t make it expire.” One group that may not be happy with the new estate tax is the heirs of wealthy families. The threat of expiration at the end of this year led many families to gift millions of dollars to their kids to take advantage of the exemption (which also applies to the gift tax). Now, attorneys say wealthy parents will pause their family giving knowing that the new exemption will be harder to change. “I think gifting for clients with under $100 million in assets will slow down,” said Laura Zwicker, chair of the private client services group at Greenberg Glusker LLP. “And for those with over $100 million, they should have fully used their exemptions already.” Along with the tax savings, the House language also includes an effective tax hike for high earners who take a lot of itemized deductions. Only about 10% of Americans — mostly the wealthy — still itemize since the standard deduction is now $15,000 for single filers and $30,000 for joint filers, and would rise again under the House proposal. Many high earners still itemize their deductions for charity, mortgage interest and other costs. The House proposal would limit the benefits of those deductions through a complex formula. Kyle Pomerleau, a tax expert and senior fellow at the American Enterprise Institute, said taxpayers in the top bracket — currently those individuals making roughly more than $600,000 — will have to subtract 2/37th from the value of each dollar deducted over the threshold. The net effect is that top taxpayers will only get a deduction benefit of 35 cents for every dollar, rather than 37 cents. “The direct impact is that it raises taxes on those households, because it reduces the value of their itemized deductions,” Pomerleau said. Since big donors to charities would get less of a tax benefit from their gifts, some say the change could reduce giving, at least on the margin. “It makes it more expensive to give to charity, so you’d expect it to have some effect,” Pomerleau said. Because it also limits the benefits of the mortgage deduction, he said it could impact real estate purchases by the wealthy, although most pay cash without a mortgage. The other potential tax hike for the wealthy, at least indirectly, is a proposed tax on private foundations. The House proposal includes a tax of 5% on the investments of foundations with assets of $250 million to $1 billion, and 2.8% for those with between $50 million and $250 million. From giant foundations like the Gates Foundation to smaller family foundations set up to guide a family’s philanthropy, the tax would substantially lower after-tax investment returns — and therefore reduce funds going to charity, say tax advisors and nonprofits. While a growing number of wealthy donors are giving through donor-advised funds rather than foundations, foundations still play a critical role in philanthropy, they say. “With government cutting funding, there is the hope that the private sector will pick it up,” Handler said. “But you’re basically cutting the legs out from under the private foundation sector.”
House Ways and Means Committee Chairman Jason Smith (R-MO) holds a news conference before a markup hearing in the Longworth House Building on Capitol Hill on May 13, 2025 in Washington, DC.
Chip Somodevilla | Getty Images News | Getty Images
A version of this article first appeared in CNBC’s Inside Wealth newsletter with Robert Frank, a weekly guide to the high-net-worth investor and consumer. Sign up to receive future editions, straight to your inbox.
High earners would get a series of tax cuts in the latest House reconciliation plans, yet many could also be subject to a little-noticed tax hike that could limit their charitable giving and other deductions, according to experts.
