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New studies examine wealth taxes amid TCJA debate

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1 year ago

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Amid some mixed signals about the possibility of higher taxes for some wealthy households, new research is shedding light on the many potential options available to policymakers.

President Donald Trump and his Republican allies in control of Congress face a year-end deadline to extend the expiring provisions of the Tax Cuts and Jobs Act. But the complexity of passing major tax legislation is taking the debate in some surprising directions as lawmakers haggle over some means of paying for the price tag of more than $4 trillion. For instance, news reports indicate that members of the administration and GOP lawmakers are considering a new top tax bracket above the reduced ones put in place by law.

To be sure, the bill has yet to take shape and other administrative actions and rhetoric from Republican lawmakers suggest there is little possibility that the legislation may include any changes to the brackets, the “buy, borrow and die” strategy or some form of a wealth tax. 

The size of the limitation on the deduction for state and local taxes has received much more attention. However, recent studies by the The Budget Lab at Yale and researchers from the University of Nevada, Las Vegas offered a lens into the wealth of policies available to reduce the cost and budget deficit impact of the tax legislation.

“I think Congress should sharply limit the three different types of tax breaks for capital gains for the wealthy,” said Steve Wamhoff, the federal policy director with the Institute on Taxation and Economic Policy, a nonprofit, nonpartisan research organization that seeks “to put forth a vision of a more racially and economically equitable tax system at all levels of government.” 

“First is the ability to defer income tax on capital gains until assets are sold and the gains are “realized,” he continued in an email. “Second is the exemption of unrealized capital gains on assets passed on to an heir. Third, even when gains are realized, they are taxed at lower rates than other types of income. All three of these should be addressed, at least for the rich, as was proposed by former President Biden.”

READ MORE: Clients aren’t likely to face estate taxes. But they still need a plan  

Understanding the strategy

The so-called buy, borrow and die strategy revolves around how capital gains are untaxed until they are realized into a household’s wealth and the fact that there is a “step up” in basis for inherited assets that shields the beneficiary from any levies based on their appreciation in value during the deceased person’s lifetime, according to the study last month by the Budget Lab.

“Together, these features create a simple tax strategy for those looking to maximize the amount of wealth passed onto their children: hold onto low-basis assets until death and finance any consumption needs through other income sources,” the study said. “One such income source is borrowing against the value of appreciated assets. Loan proceeds are traditionally nontaxable, as they represent a temporary transfer of cash that will be repaid, not income per se. But in the case of someone borrowing against appreciated assets, loan proceeds function identically to cash from an asset sale — except without the associated tax liability. This is the ‘buy-borrow-die’ strategy, which results in appreciation escaping tax entirely.”

READ MORE: Gimme (tax) shelter: The unlimited annuity shielding ultrawealthy clients

Policy ideas

Three ideas that have emerged as a method of reducing the tax benefits for wealthy households could generate between $102 billion and $147 billion in new revenue over the next decade, according to the study’s calculations. Those reforms would respectively create a taxable event for some households’ loans, obligate certain taxpayers to prepay duties on capital gains when they borrow or impose a new flat levy on a small portion of lending activities. 

Importantly, the policy suggestions “reflect inherent tensions in reforming the tax treatment of borrowing,” and raise “important dimensions along which policymakers must trade off potential goals,” the study said. The latter idea for a new flat tax on certain loans, for example, would “leave the tax preference in place for some while also newly taxing others who are borrowing for legitimate non-tax reasons,” according to the study. At the same time, each of the policies could broaden the base of taxpayers by eliminating what critics see as a loophole in the rules.

“Beyond raising revenue progressively, these reforms aim to address a fundamental distortion in the tax code: the implicit preference for borrowing over realizing capital gains,” the study said. “By assessing a tax on borrowing against appreciated assets, each reform would reduce the current-law tax advantage for financing consumption through debt rather than asset sales.”

To Wamhoff, the proposals “would absolutely be a step in the right direction,” in terms of “making our tax code fair and raising enough revenue to fund public investments,” he said. 

“I happen to think that very wealthy people should pay income tax on their unrealized capital gains more broadly each year, not just to the extent that they are borrowing, and this proposal would get at only a fraction of that because the borrowing is probably only a small percentage of their unrealized gains,” Wamhoff said. “But from the perspective of tax fairness you could say these proposals address some of the most egregious ways that wealthy people take advantage of the tax deferral for unrealized capital gains. These are cases where you cannot say there is an administrative reason or practical reason for these wealthy people to continue deferring income tax on their unrealized gains.”

READ MORE: Borrowing from investment profits without incurring capital gains taxes

State-level wealth taxes

Another type of policy idea would focus on taxing wealth that has risen to some level above a threshold of assets or simply impose new duties based on a household’s net worth. Five states have already adopted laws that are doing so, with seven others considering legislation to start a wealth tax, according to a January study in the “Tax Notes State” journal by Francine Lipman and Steven Reinecker of UNLV’s William S. Boyd School of Law. 

Citing a Fed estimate that the top 10% of the richest households in the country have two-thirds of the country’s wealth, they point out that states could generate more than $1 trillion per year in tax revenue with a 1% surcharge on those taxpayers. The researchers see little chance of any federal action, though.

“Given the results of the November 2024 election, the prospect of a federal wealth tax anytime soon becomes remote,” Lipman and Reinecker wrote. “Republicans now control both the Senate and the House of Representatives, where such a proposal would likely be dead on arrival. Also, with the reelection of President Donald Trump, the chances are even lower. Trump campaigned on tax cuts, not tax increases, so it is unlikely he would sign any wealth tax bill if it did reach his desk. 

As well as the unlikelihood of Congress passing a wealth tax bill, the recent Supreme Court case Moore v. U.S. calls into question whether a wealth tax would even be constitutional.”

After explaining the debates in California, Massachusetts, Minnesota, New York, Washington, Connecticut, Hawaii, Illinois, Maryland, Nevada, Pennsylvania and Vermont and efforts to block the idea entirely in Louisiana, West Virginia and Texas, the researchers suggested that “the path ahead for wealth taxes may be similar to states legalizing and taxing cannabis.” In other words, a few states legalized marijuana in some form, but then many more followed suit up to today’s total of two dozen plus the District of Columbia after “it was shown to be fiscally lucrative and systematically successful,” Lipman and Reinecker wrote.  

“The five states that have passed a wealth tax have shown success, with more revenue generated and no apparent exodus of wealthy residents,” they wrote. “The willingness or unwillingness to consider wealth taxes at the state level generally seems to be along political party lines. This divide is so deep that even households in ‘red’ states that would benefit from high-net-worth taxpayers paying more in tax revenue often vote against wealth taxes.”

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Accounting

AI-Driven Automation and Continuous Accounting Frameworks

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4 days ago

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August 15, 2026

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The accounting profession is undergoing a fundamental structural transition as enterprise finance departments shift from periodic month-end closes toward automated continuous accounting models. By integrating specialized machine learning algorithms directly into enterprise resource planning (ERP) platforms, chief accounting officers are transforming financial reporting from a retrospective exercise into a real-time operational asset.

The Shift from Periodic Close to Continuous Financial Reporting
Traditional accounting workflows heavily relied on manual data reconciliation, spreadsheet calculations, and multi-week closing cycles at the end of each fiscal period. In contrast, continuous accounting frameworks utilize automated software agents to process, validate, and post transactional data in real time as business activities occur.

Automated bank reconciliation tools cross-reference incoming bank feeds, invoice records, and purchase orders automatically. By resolving transactional variances instantly throughout the month, corporate accounting teams eliminate the traditional workload spikes associated with quarterly and annual closes.

Machine Learning in Audit Trails and Anomaly Detection
Advanced natural language processing (NLP) and machine learning tools are redefining internal audit and financial control environments. Automated systems analyze 100% of general ledger entries, identifying anomalous transactions, duplicate payments, and unauthorized journal entries in real time.

Rather than relying on random statistical sampling, corporate internal auditors can focus their attention on high-risk flags automatically surfaced by algorithmic monitoring platforms. This continuous risk assessment strengthens internal controls over financial reporting (ICFR) and significantly reduces fraud risk.

Evolving Roles for Accounting Professionals
As routine data entry and manual reconciliation tasks become fully automated, the skill set required for accounting professionals is shifting toward data analysis, system design, and strategic business advisory.
– Systems Governance: Accountants are increasingly responsible for monitoring algorithmic accuracy and managing data integration pipelines.
– Business Partnership: Finance professionals leverage real-time financial dashboards to advise operational leaders on margin management and working capital allocation.
– Regulatory Compliance Management: Accounting teams utilize automated platforms to ensure compliance with dynamic tax codes and international accounting standards.

Core Implementation Recommendations
1. Deploy Automated Reconciliation Tools: Integrate continuous transaction processing modules into existing enterprise ERP architectures.
2. Establish Algorithmic Governance Controls: Implement strict internal testing protocols to ensure automated accounting rules comply with GAAP/IFRS standards.
3. Reskill Accounting Teams: Invest in training finance staff on data analytics, workflow automation, and predictive financial modeling.

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Accounting

Global ESG Reporting Standards and Double Materiality Compliance

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1 week ago

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August 9, 2026

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Corporate accounting departments face expanding reporting expectations as international sustainability disclosure standards achieve regulatory enforcement across major global jurisdictions. Chief Accounting Officers (CAOs) and corporate controllers are establishing rigorous internal accounting controls to treat Environmental, Social, and Governance (ESG) metrics with the same data precision, auditability, and governance as traditional financial statements.

Regulatory Harmonization Under Global Sustainability Frameworks
The implementation of standardized sustainability reporting frameworks—notably rules established by international sustainability accounting boards—has created unified expectations for public and large private enterprises. Corporations must report standardized metrics covering greenhouse gas emissions (Scope 1, 2, and material Scope 3), energy utilization, workforce demographics, and supply chain governance.

In Europe and other participating international jurisdictions, double materiality principles are mandatory. Under double materiality, organizations must report both how external sustainability risks impact corporate financial performance, and how internal corporate operations affect surrounding environmental and social structures.

Integrating Sustainability Metrics into Core ERP Systems
To provide auditable non-financial data, enterprise organizations are integrating specialized carbon accounting and ESG management platforms directly into core ERP systems. Automated data collectors capture energy utility invoices, logistics fuel consumption metrics, and vendor compliance records in real time.

Establishing automated, traceable data pipelines ensures that non-financial reporting is supported by clear audit trails. This structured approach allows external financial auditors to provide reasonable assurance on sustainability disclosures during annual corporate reporting cycles.

Financial Impacts and Capital Market Disclosure
Accurate ESG reporting directly influences corporate cost of capital and institutional credit ratings. Commercial lenders and institutional asset managers systematically incorporate sustainability metrics into risk pricing models. Companies that demonstrate transparent, verifiable progress in operational energy efficiency and climate risk mitigation benefit from expanded access to green bond markets and lower debt pricing.

Action Steps for Accounting Leadership
1. Implement Double Materiality Frameworks: Conduct comprehensive assessments to identify material financial and operational sustainability metrics.
2. Build Auditable Non-Financial Data Pipelines: Automate ESG data collection within core accounting software to ensure data integrity.
3. Align Sustainability with Annual Financial Filings: Prepare non-financial disclosures concurrently with financial statements to satisfy regulatory audit expectations.

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Accounting

Modernizing Internal Controls: Machine Learning and Continuous Monitoring in Auditing

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2 weeks ago

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August 5, 2026

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Internal audit departments and corporate risk managers are modernizing internal control frameworks by shifting from periodic sampling techniques to continuous monitoring and machine learning analytics. As operational data volumes increase across enterprise organizations, automated control testing ensures financial integrity, prevents corporate fraud, and streamlines annual audit engagements.

The Limitation of Periodic Audit Sampling
Historically, internal and external auditors evaluated internal controls by reviewing random samples of financial transactions—often analyzing less than five percent of total ledger entries. In complex enterprise environments, periodic sampling methods carry inherent risks of overlooking localized financial misstatements, unauthorized disbursements, or operational control breakdowns.

In 2026, progressive internal audit functions are utilizing automated continuous monitoring platforms that evaluate one hundred percent of financial transactions in real time. Continuous control auditing systems continuously monitor general ledger entries, procurement approvals, and expense reimbursements across all operating subsidiaries.

AI-Powered Fraud Detection and Anomaly Identification
Machine learning models trained on historical corporate financial data excel at identifying subtle transactional anomalies that indicate potential fraud or operational error. Automated systems instantly flag duplicate invoice payments, unapproved vendor creation, unusual journal entry timing, and unauthorized override of authority thresholds.

When an anomaly is detected, the automated auditing platform generates an instant risk alert, allowing internal audit teams to investigate root causes immediately. Early detection prevents minor operational errors from escalating into material weaknesses in financial reporting.

Streamlining External Audit Preparation
Continuous internal control monitoring delivers significant benefits during annual external financial audits. External audit firms can review continuous audit logs and automated control testing documentation, reducing the time required for manual field testing.

This integrated approach lowers overall audit compliance fees, reduces administrative burdens on corporate accounting staff, and provides senior management and audit committees with real-time visibility into the organization’s overall risk profile.

Core Implementation Guidelines
1. Transition to 100% Data Testing: Replace legacy sampling methods with automated continuous audit monitoring systems.
2. Deploy Anomaly Detection Algorithms: Implement machine learning models to identify unauthorized transactions and operational control overrides.
3. Align Internal and External Audit Workflows: Coordinate continuous control testing protocols with external auditors to optimize annual compliance cycles.

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