Accounting
New studies examine wealth taxes amid TCJA debate
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
To be sure, the bill has
The size of the limitation on the
“I think Congress should sharply limit the three different types of tax breaks for capital gains for the wealthy,” said Steve Wamhoff, the
“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,
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Understanding the strategy
The so-called
“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.”
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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
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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
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.”
The Tennessee General Assembly passed legislation backed by the Tennessee Society of CPAs adding an extra pathway to a CPA license, as more states make efforts to alleviate the shortage of new accountants.
SB 1316/HB 1330, introduced by Senate Majority Leader Jack Johnson and House Majority Leader William Lamberth on behalf of the administration, was filed for introduction on Feb. 6. The legislation aligns with Tennessee Governor Bill Lee’s goal to streamline state boards and simplify licensing. Members of the Tennessee Society of CPAs
The legislation offers two pathways to licensure for prospective CPAs starting Jan. 1, 2026. Applicants can either:
- Ccomplete the traditional path of at least 150 semester hours of college education including a bachelor’s degree plus one year of accounting experience; or,
- Complete at least 120 semester hours of college education including a bachelor’s degree plus two years of accounting experience.
For both options, the coursework needs to include an accounting concentration as determined by Tennessee State Board of Accountancy rule.
In addition, the legislation includes CPA practice mobility provisions so CPAs can still practice across state lines. Current and future CPAs who don’t have a principal place of business in Tennessee will be able to practice in the state if they hold a valid CPA license in good standing from another state and if, at the time of licensure, they showed evidence of having passed the Uniform CPA Exam. They need to consent to the jurisdiction and disciplinary authority of the TSBOA, comply with the applicable statute and board rules of the state, and cease offering services in Tennessee if their license in the state of issuance is deemed to be no longer valid. These changes will take effect July 1, 2025.
(Read more: See
“This legislation is a key step in ensuring that the demand for skilled accounting professionals, specifically licensed CPAs, can be met now and in the future,” said TSCPA president and CEO Kara Fitzgerald in a statement Monday. “Tennessee was a leader in advocating for the 150-hour rule in the 1990s, and as the needs of the profession change, Tennessee will continue to lead in evolving our licensure model to make sure we meet those needs.”
The bill will now be sent to Gov. Lee and, once he signs it, will become effective on the dates stated above.
Other states besides Tennessee have been
Baker Tilly and Moss Adams have made their merger official, combining to form what promises to be the sixth largest CPA firm in the U.S.
Rumors of the
Baker Tilly, based in Chicago, ranked No. 11 on Accounting Today‘s 2025 list of the
Baker Tilly CEO Jeff Ferro will be CEO of the combined firm through his retirement, while Eric Miles, who is currently Moss Adams’ chairman and CEO, has been named CEO-elect. Miles will assume the role of CEO on January 1, 2026, with Ferro remaining a director on Baker Tilly’s board thereafter.
“Moss Adams is a great strategic fit with Baker Tilly,” Ferro said in a statement Monday. “We’ve long respected the firm, its people and its industry-focused approach. By bringing together our strengths, we are expanding our ability to serve middle-market businesses with greater expertise, resources and insights.”
“The resources, geographic reach and go-to-market strength of the combined firm magnifies opportunities for our people to grow, collaborate and innovate,” Miles stated. “We are proud to offer our clients these expanded resources to deliver even greater value and set a new standard for advisory services in the middle market.”
As part of the deal, private equity firm Hellman & Friedman, an existing investor in Baker Tilly, will make an additional strategic investment in the business, with existing shareholder Valeas Capital Partners also increasing its investment.
The deal is expected to close in early June of this year. Once the deal closes, Moss Adams and Baker Tilly’s audit business will combine as Baker Tilly US, LLP and the firms’ business advisory, tax and other services will combine under Baker Tilly Advisory Group, LP. Both entities will remain partnerships, with all principals holding equity alongside H&F and Valeas in BTAG.
“Since we invested in Baker Tilly, we have been focused on building a differentiated firm with the ambition to change the game in the middle-market accounting industry,” said H&F partner Blake Kleinman in a statement. “This landmark merger between Baker Tilly and Moss Adams is an important step in creating a firm that will be the destination of choice for the industry’s best talent and for firms considering their strategic options in a rapidly evolving sector.”
Former AICPA president and CEO Barry Melancon
Simpson Thacher & Bartlett LLP and Vedder Price PC served as legal advisors to Baker Tilly. Deutsche Bank Securities Inc. served as financial advisor and Dechert LLP as legal advisor to Moss Adams.
Baker Tilly is part of the Baker Tilly International network, based in London, which reported $5.6 billion in worldwide revenue in 2024. Baker Tilly has done several acquisitions since receiving
Last May, it merged in
Moss Adams does not do M&A deals as often, but last December, it entered the Salesforce.com consulting market by acquiring
International accounting and consulting firm KNAV Advisory added U.K.-based firm Aventus Partners, effective April 4.
The deal strengthens KNAV’s operations in the U.K. and continues its international expansion strategy. Last year, it integrated Natarajan & Swaminathan in Singapore and HLG Netherlands.
“This is a major milestone for KNAV’s UK operations,” KNAV CEO Nishta Sharma said in a statement. “It reinforces our commitment to a unified, integrated model that delivers exceptional value to global clients.”
KNAV reported $21.5 million in revenue in 2024 and has three offices, 12 partners and 202 employees. It was one of the
Aventus, with $5.3 million in revenue, provides audit and assurance, tax advisory, financial reporting and outsourced finance team services. The deal adds four partners and 27 employees to KNAV.
Both firms are members of Allinial Global, a global association of independent accounting and consulting firms.
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