Will a New Millionaire Tax Generate $400 Billion in Revenue?

Every tax season, we juggle deadlines, deductions, and decoding legislation that shifts faster than a New York minute. But beneath the spreadsheets and statutes lies a deeper truth: the tax code isn’t just numbers; it’s values in disguise. For many finance professionals, taxes are more than compliance. They’re a front-row seat to the country’s priorities. So, when talk turns to taxing millionaires to fund tax breaks for middle America, it’s more than just fiscal policy; it’s a political tightrope walk that could reshape your client conversations, strategic planning, and the future of U.S. tax law. With Trump-era tax cuts set to expire and Washington deep in budget math gymnastics, here’s the $400 billion question: Will Republicans raise taxes on the rich to save cuts for everyone else?

A Slice of 2017’s Pie

Let’s rewind. The Tax Cuts and Jobs Act (TCJA) of 2017 was a signature win for Trump. It sliced individual income tax rates, doubled the estate tax exemption, and added that sweet 20% pass-through deduction for small businesses. But most of these provisions weren’t permanent. Fast forward to now: those cuts will snap back at the end of 2025 like a rubber band unless Congress steps in. Rates will revert to their 2017 levels—bad news for high earners, estates, and closely held businesses. But here’s the twist: extending the TCJA in full would cost a whopping $5.3 trillion over a decade. How do you cover a bill like that when there’s a hard cap of $1.5 trillion on new reductions? You either go on a diet (spending cuts), or you find more dough (new revenue). And that’s where the so-called Millionaire Tax crashes the party.

The extension primarily benefits the wealthy, with the top 1% receiving an average of $70,000 tax cut. Middle-income households get around $1,000 and would lose less than $100/month if it expires. Economists project a short-term GDP boost, but growth slows after 2028 and won’t cover the extension’s cost, making it more of a sugar rush than a long-term fix.

The Millionaire Tax

The idea?  A 40% income tax rate on Americans earning $1 million or more. Think bankers, big tech execs, and some ultra-successful entrepreneurs.

Two major think tanks have weighed in:

• The Budget Lab at Yale says it would raise $420 billion over 10 years.
• The Tax Foundation puts it at $358 billion over the same period.

Either way, it’s a sizable chunk of change, enough to fund Trump’s ideas like eliminating taxes on tips ($118B price tag) or overtime pay ($680B price tag). It could even juice up the child tax credit from $2,000 to $2,500.

Source: Bloomberg

But don’t expect this to be a lovefest. President Trump recently poured cold water on the whole idea, warning it would cause a “wealth exodus” from the U.S. “Other countries that have done it have lost a lot of people. The wealthy pay the tax,” he said. Speaker Mike Johnson echoed the sentiment, reaffirming the party’s anti-tax DNA: “We’re working against that idea.” And conservative icons like Newt Gingrich fear it might burn the GOP at the ballot box. As Rep. Nicole Malliotakis said, “It’s certainly on the table.” The message? If you want to fund tax breaks for the middle class, you might need to tap the top.

3 Tax Ideas That Could Do the Trick

While the 40% bracket has been grabbing headlines, other creative options are also floating around Capitol Hill. Here are three wealth-targeted ideas from recent research:

1. Clamp Down on Capital Gains

Steve Wamhoff at ITEP suggests reining in three major capital gains perks:

• Deferring taxes until assets are sold.
• Stepped-up basis loophole for heirs.
• Lower tax rates for capital gains vs. ordinary income.

These tweaks wouldn’t just raise money, they’d tackle structural tax fairness issues, too.

2. Target the “Buy-Borrow-Die”

Wealthy individuals often avoid taxes by borrowing against appreciating assets, spending tax-free, and letting heirs dodge capital gains through step-up basis.

Yale’s Budget Lab floated three fixes:

• Tax certain asset-backed loans.
• Make borrowers prepay capital gains.
• Or levy a small flat tax on lending activity.

These ideas could rake in $102B–$147B over 10 years while plugging one of the most notorious tax avoidance strategies.

3. State-Level Wealth Taxes Are Catching Fire

Think wealth taxes are DOA in D.C.? You might be right. But states are moving fast. Five states have already passed wealth tax laws, and seven more are considering them. UNLV research estimates that even a 1% surcharge on the richest 10% could generate over $1 trillion a year, no joke. And unlike Trump’s concern about a mass millionaire migration, these states aren’t seeing an exodus yet. Just like cannabis legalization, wealth taxes might start local and go national… eventually.

What Comes Next?

Congress returns from recess next week, ready to hash out the details. Johnson says he wants a tax package passed by the end of May. Meanwhile, Republicans are trying to use an accounting gimmick to score the $3.8 trillion cost of the TCJA renewal as $0 (yes, zero) for budgeting purposes. It’s like putting a Ferrari on layaway and calling it free. Whether the millionaire tax survives the chopping block, or just becomes a bargaining chip, is still TBD. But one thing’s for sure: even in a party that traditionally treats tax hikes like garlic to vampires, the pressure to fund popular tax breaks is forcing a few GOP lawmakers to at least peek inside Pandora’s (tax) box. As tax professionals, it’s a good time to keep your eyes peeled and your calculators handy. Whether your clients are on the giving or receiving end of these proposals, the 2025 tax season might just have a few curveballs coming your way. Get the latest in tax, finance, and policy straight to your inbox—join the MYCPE ONE Insights newsletter.