House Democrat Pitches New Wealth Tax as Midterms Draw Near

A House Democrat is proposing that Congress tax large lines of credit that help the nation’s highest earners convert appreciated assets into cash, a tax-the-wealthy policy those on the left have wanted for years.

The legislation, shared first with Bloomberg Tax, targets a practice where wealthy individuals take out loans rather than sell assets, meaning their loan isn’t counted as taxable income. Rep. Laura Friedman‘s (D-Calif.) bill would impose an excise tax of 23.8%, to be paid by the borrower on the amount of a covered loan when it’s issued.

The Hollywood-area representative, who has had other legislation picked up by the Ways and Means Committee, is setting the stage for serious discussions about how to put policy behind Democrats’ top slogan: Tax the rich.

That 23.8% rate would match the top long-term capital gains rate, plus the net investment income tax — making the rate for borrowing against assets comparable to selling them. The new tax would apply to aggregate covered loans above $1 million, and related parties would be counted together so the threshold couldn’t be split. Both the $1 million threshold and the home equity cap would adjust for inflation after 2027.

The measure comes as Democrats look for ways to tax the richest Americans ahead of the midterms, which have increasingly become a referendum on the nation’s growing wealth gap. The party is also seeking ways to raise revenue next year for government programs like Social Security, which is anticipated to run out in 2032 according to latest trustees’ reports.

“The ‘Pay Your TAB’ Act closes a loophole the ultra-wealthy use to avoid paying taxes on fortunes 99% of Americans can’t imagine,” Friedman said in a statement.

Ending the Dodges

Democrats argue proposals like Friedman’s would level an uneven playing field where millionaires and billionaires dodge paying into the system.

Her bill includes several exemptions, including home mortgages on a primary residence, home equity debt up to $3 million, auto loans up to $100,000, student loans, genuine business loans — other than loans used to fund distributions — and qualified margin loans used for securities trading.

Any increase to an existing loan during a restructuring would count under the measure. To prevent the same value from being taxed twice, the bill allows an offsetting long-term capital loss equal to the taxed loan amount if the taxpayer were to sell the related asset later on.

The bill proposes that loans issued before Jan. 1, 2027 and still outstanding as of June 30, 2027 would be phased in over three years.

Sen. Ron Wyden (D-Ore.), ranking member on the Senate Finance Committee, has proposed a similar — though more expansive — idea to impose an annual levy on the appreciation of assets like stocks and bonds, plus rules intended to deter tax avoidance.

Wyden’s proposal would target a smaller pool of taxpayers with $100 million or more in annual income, or roughly 700 people, by his office’s estimate. Some tax practitioners were skeptical of Wyden’s measure, calling it unconstitutional, which could make Friedman’s proposal a more palatable option.

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