The Hidden Tax Hikes: What the New 45% Capital Gains Proposal Means
Marcus ThorneBy Marcus Thorne
Finance
Jun 1, 2026 • 10:06 AM
2m2 min read
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The Core Insight
An exhaustive analysis of the latest federal tax proposals, including a potential 44.6% capital gains rate, the elimination of the Tax Cuts and Jobs Act, and a controversial 25% wealth tax on unrealized gains. The content evaluates the economic impact on investors, real estate owners, and corporations, while questioning the efficacy of these measures versus the core issue of government spending.
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Marcus Thorne
Marcus Thorne is a former Wall Street analyst and certified financial planner. He simplifies complex market trends and economic data for everyday readers.
The Kodawire Editorial Team consists of experienced journalists and subject matter experts dedicated to delivering accurate, well-researched, and engaging content.
The New Tax Landscape: Analyzing the 2026 Fiscal Proposals
The Bottom Line
Capital Gains Hike: Proposals suggest raising the top long-term capital gains rate to 44.6% for those earning over $1 million, nearly doubling the current 23.8% maximum.
TCJA Expiration: The scheduled sunset of the Tax Cuts and Jobs Act in 2025 threatens to raise income tax brackets across the board for most Americans.
Unrealized Gains: A controversial 25% "wealth tax" on unrealized gains for individuals with over $100 million in net worth is being debated, raising significant constitutional questions.
Strategic Shift: Investors are increasingly looking toward borrowing against assets rather than selling them to avoid triggering massive tax events.
The current discourse surrounding federal tax reform has reached a fever pitch. As we look toward the 2026 fiscal horizon, the proposals on the table represent some of the most significant potential shifts in American tax policy in a century. While headlines often focus on the "taxing the rich" narrative, the reality is that these changes, if enacted, would ripple through the entire economy, affecting everything from real estate liquidity to corporate investment strategies.
I have spent the last several weeks dissecting the fine print of these proposals. It is clear that much of the public conversation is missing the nuance of how these policies interact with existing market behaviors. Whether you are a high-net-worth investor or a middle-class earner watching the expiration of the Tax Cuts and Jobs Act (TCJA), understanding these mechanics is no longer optional, it is a requirement for financial planning. To prepare for these shifts, many are revisiting tax-saving strategies to protect their long-term gains.
The Market Outlook
From my perspective as a market strategist, the current proposal to hike long-term capital gains to 44.6% is a blunt instrument. Historically, capital gains are taxed at lower rates to compensate for two primary factors: the inherent risk of market volatility and the erosion of purchasing power caused by inflation. When you tax capital gains at the same rate as ordinary income, you effectively penalize the act of long-term wealth creation.
Market volatility and tax policy changes require careful analysis of long-term investment strategies. (Credit: Jason Briscoe via Unsplash)
If we look at the math, the combination of federal hikes and state-level taxes, particularly in high-tax jurisdictions like California, could push the effective tax rate on long-term gains toward 59%. This creates a "lock-in" effect. Investors will simply stop selling. When capital becomes trapped in stagnant assets because the cost of exiting is too high, market liquidity dries up, and the velocity of money slows. This is not just a "rich person problem"; it is a systemic issue that impacts the efficiency of our entire financial ecosystem. For those planning their future, understanding the retirement drawdown is essential as these tax rules evolve.
How I Researched This
To provide this analysis, I conducted an independent review of the legislative filings currently under discussion. My process involved cross-referencing these proposed changes against historical tax code precedents and current IRS guidelines. I have avoided relying on political talking points, focusing instead on the mechanical impact these changes would have on asset valuation, corporate behavior, and individual tax liability. My goal is to provide a clear-eyed view of the fiscal reality, stripped of the partisan rhetoric that often clouds these discussions.
Breaking Down the 6 Major Tax Changes
The proposed legislative package is broad, touching on nearly every facet of the tax code. Here is the breakdown of the most significant shifts:
Capital Gains: The proposal seeks to move the top rate from 23.8% to 44.6% for those earning over $1 million annually. This includes the ordinary income rate plus an increased net investment tax.
Income Tax: The expiration of the TCJA is the "silent" tax hike. By reverting to previous brackets, the government effectively raises taxes on a broad swath of the population, not just the top 1%.
Wealth Tax: A 25% tax on unrealized gains for those with over $100 million in net worth. This is unprecedented and faces significant legal hurdles regarding the definition of "income" under the 16th Amendment.
1031 Exchange: Capping tax-deferred profits at $500,000. This change would likely stifle real estate turnover, as investors would lose the incentive to trade up to larger, more productive properties.
Corporate Tax: Increasing the rate from 21% to 28%. While this aims to capture more revenue, it risks being passed down to consumers through higher prices or to employees through wage stagnation.
Stock Buybacks: A new 4% tax on share repurchases. This is designed to force companies to reinvest in infrastructure, though history suggests companies may simply hold cash or reduce shareholder returns rather than increasing capital expenditure.
The Risks You Need to Know
The primary risk here is market distortion. When tax policy dictates investment behavior rather than market fundamentals, we see a decline in efficiency. For instance, the 1031 exchange cap could lead to a massive reduction in real estate inventory. If investors stop selling, the supply of available housing tightens, potentially driving prices higher for the average buyer. Furthermore, the constitutional challenge regarding the taxation of unrealized gains could lead to years of litigation, creating a climate of extreme uncertainty for institutional and private investors alike.
Corporate tax increases and real estate policy shifts can significantly impact market inventory and business growth. (Credit: Kenrick Baksh via Unsplash)
The Constitutional and Economic Debate
The proposal to tax unrealized gains is perhaps the most contentious element. Under the 16th Amendment, the consensus has long been that income must be "realized", meaning a transaction must occur, before it can be taxed. Taxing appreciation on assets that have not been sold is, in many ways, a tax on a hypothetical value. If an asset drops in value the following year, the taxpayer is left with a tax bill for gains that no longer exist.
Economically, this risks capital flight. If the U.S. tax environment becomes significantly more hostile than global alternatives, we may see a shift in where capital is domiciled. Reduced market liquidity is the inevitable byproduct of these policies, as the cost of capital increases and the incentive to take risks diminishes. For those looking to build wealth despite these hurdles, adopting boring habits remains a proven path to long-term stability.
What the Numbers Really Mean
Consider the valuation method for non-tradable assets under the wealth tax proposal. The government suggests using cost basis plus an annual increase of 6.65%. On a $100 million portfolio, this assumes a $6.65 million annual gain. At a 25% tax rate, the owner owes $1.66 million in cash annually, regardless of whether the asset actually appreciated or generated income. This forces a liquidity event on the taxpayer, essentially mandating the sale of assets to pay the tax bill.
The Other Side of the Story
Many proponents argue that the current system is fundamentally unfair, pointing to the fact that some high-net-worth individuals pay a lower effective tax rate than middle-class workers. While this is a compelling political narrative, it ignores the reality of how wealth is structured. The "low" tax rate is often a result of holding assets long-term, which is a behavior the government has historically incentivized to promote stability. The contrarian view is that the issue isn't the tax rate, it's the lack of fiscal discipline in government spending. Raising taxes without addressing the underlying expenditure growth is akin to putting a bandage on a broken bone.
Strategic financial planning is essential when navigating potential changes to the tax code. (Credit: Kelly Sikkema via Unsplash)
The Decision Matrix
If you are evaluating your portfolio in light of these potential changes, consider your current position:
If you hold significant unrealized gains: You may want to evaluate the cost-benefit of realizing those gains under current rates versus the risk of higher future rates.
If you are a real estate investor: Assess whether your current properties will remain viable if the 1031 exchange benefits are capped.
If you are a high-earner: Focus on tax-efficient borrowing strategies. Borrowing against assets is currently a standard way to access liquidity without triggering a taxable event.
Tools I Actually Use
To manage these complexities, I rely on a few specific categories of tools:
Tax-Efficient Asset Management Platforms: Tools that allow for automated tax-loss harvesting to offset gains.
Advanced Financial Modeling Software: Applications that allow for "what-if" scenarios regarding tax bracket changes and portfolio rebalancing.
Direct Asset-Backed Lending Services: Platforms that facilitate borrowing against securities or real estate, which remains a critical strategy for maintaining liquidity without triggering capital gains.
What Do You Think?
The debate over these tax proposals is far from settled, and the outcome will likely be shaped by the political climate leading into 2026. Do you believe that the government should prioritize increasing revenue through these aggressive tax hikes, or should the focus remain on auditing and reducing government expenditures? I will be replying to every comment in the first 24 hours, so let me know your perspective below.
The proposal suggests raising the top long-term capital gains rate to 44.6% for individuals earning over $1 million annually, up from the current 23.8% maximum.
It is a proposed 25% tax on the appreciation of assets for individuals with a net worth exceeding $100 million, even if those assets have not been sold.
Capping tax-deferred profits at $500,000 could discourage investors from trading up to larger properties, potentially reducing real estate inventory and driving up prices.
The scheduled sunset of the Tax Cuts and Jobs Act in 2025 will cause income tax brackets to revert to previous, higher levels, effectively increasing taxes for a broad range of Americans.
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Editorial Team • Question of the Day
"Do you believe the proposed 44.6% capital gains tax will actually increase government revenue, or will it simply cause investors to stop selling and lock up market liquidity?"
