Proposed “Fair Share” Tax Targets Unrealized Gains

The “fair share tax” is a federal measure being drafted for introduction as a House bill this summer. It would impose an annual tax on households whose lifetime investment gains exceed $15 million, treating the appreciation of unsold assets as taxable income each year. The tax is designed to replace the “buy, borrow, die” strategy that lets ultra-wealthy families defer capital-gains tax by borrowing against assets and passing them to heirs under the step-up-in-basis rule. By taxing the unrealized appreciation, the proposal aims to eliminate the advantage of holding assets indefinitely.

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Current federal tax law taxes only realized income. The step-up rule allows heirs to inherit assets at current market value, avoiding the 23.8 % capital-gains tax that would otherwise apply. Wealthy families often borrow at low rates against their holdings, generating little taxable income while preserving wealth. State-level “millionaire taxes” exist in the District of Columbia and seven states; Washington, for example, taxes income above $1 million at 9.9 %. However, these taxes do not capture unrealized gains, leaving a major loophole at the federal level. A federal wealth tax would likely be deemed a “direct tax” requiring apportionment, a constitutional obstacle not resolved since the 1913 Sixteenth Amendment.

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• Brian Galle – tax-policy expert who authored the fair share tax proposal.

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• Harvey Dale – NYU tax-law professor who advises billionaire clients and analyzes the plan’s constitutional prospects.

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• Rep. Don Beyer (D-VA) and Sen. Chris Van Hollen (D-MD) – introduced a separate federal wealth-tax bill in March.

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• The U.S. Supreme Court – its 2024 decision in *Moore v. United States* signaled that income is measured only at sale, complicating any effort to tax unrealized appreciation without a constitutional amendment.

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• Threshold: $15 million in lifetime investment gains.

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• Tax base: Annual appreciation of unsold assets, calculated with interest tied to the yearly increase.

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• Current capital-gains rate: 23.8 % on realized gains.

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• State precedent: Washington’s 9.9 % rate on income above $1 million; eight jurisdictions have millionaire-tax laws.

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Galle argues that taxing unrealized gains after they are realized could satisfy constitutional requirements. Dale emphasizes that any effective reform would likely need a constitutional amendment—a prospect he rates “slightly below zero.” Beyer and Van Hollen have advocated for broader wealth-tax measures but have not endorsed the fair share tax’s specific mechanism. The Supreme Court’s recent ruling reinforces the legal barrier to redefining income.

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Legal analysts caution that without extending the tax to assets held in complex trusts, wealthy families could continue to shield gains. Dale notes that new rules typically trigger an “army of $3,000-an-hour lawyers” seeking loopholes, suggesting implementation challenges beyond legislative approval.

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By taxing unrealized gains, the proposal seeks to narrow the wealth gap that fuels political influence among billionaires. It also addresses the fiscal shortfall created by the step-up rule, potentially generating revenue from assets that currently escape taxation.

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• “A direct tax at the national level has to ride in on a unicorn.” — Brian Galle, tax-policy expert

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• “We don’t tax wealth, we tax income,” — Harvey Dale, NYU tax-law professor

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• “We all thought that there’s no way the Supreme Court’s going to say that income only gets measured at sale,” — Brian Galle, tax-policy expert

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• “The people who really hate, hate, hate taxes? Most of them have already left [California].” — Brian Galle, tax-policy expert

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• “seems to be something slightly below zero.” — Harvey Dale, NYU tax-law professor

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The fair share tax is slated for House consideration this summer. If passed, it would still require clarification from the judiciary or a constitutional amendment to withstand potential Supreme Court challenges. Legislative debate will focus on the tax’s scope, trust-law implications, and political feasibility.

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