Washington is poised for a period of legislative gridlock, as presidential vetoes effectively block any immediate major tax increases over the next two years. Nevertheless, looking toward the long-term consequences of recent elections reveals a high probability that fiscal policy will shift upward by the end of the decade, giving affluent taxpayers a critical two-year window to prepare.

Two primary drivers are converging: a progressive political shift arguing that high-earning individuals bear an insufficient tax burden, and an escalating federal deficit exacerbated by climbing interest rates on national debt. Facing this impending fiscal pressure, a future revenue-driven tax hike by 2029 could easily garner bipartisan support.

Timothy Tallach, a certified public accountant and attorney with HB Wealth in Atlanta, centers his practice on preparing ultra-high-net-worth families for such structural volatility, though his principles apply broadly to taxpayers at various income levels. Tallach advises engineering resilient portfolios and estate plans capable of weathering legislative changes, urging proactive measures now while remaining ready to execute further maneuvers if political shifts materialize.

Left-leaning advocacy groups, such as the Institute on Taxation and Economic Policy, have openly called for swift legislative action to extract greater revenue from corporations and high-income earners. With historical precedent showing dozens of tax code overhauls over a 30-year career, change remains a constant that prosperous taxpayers must anticipate by 2029.

1. Favorable capital gain rates

Currently, the maximum long-term capital gains tax rate sits at 20%, excluding the 3.8% investment income surtax, with lower brackets at 15% and 0%. Tax reformers may target these rates by imposing ordinary income tax brackets—reaching up to 37%—on long-term gains for individuals earning above specific thresholds like $500,000 or $1 million, potentially offset by an inflation adjustment on purchase prices.

To protect assets, Tallach suggests accelerating planned asset sales over the next five to ten years, though caution is required to avoid unnecessarily pushing into a higher tax bracket at the end of 2028. Another defensive approach involves channeling new capital into automated loss-harvesting programs.

2. Favorable rates on dividends

Corporate dividends currently enjoy preferential long-term capital gains rates, a policy originally justified by the avoidance of double taxation on corporate and distributed profits. However, lawmakers like Senator Ron Wyden have proposed taxing dividends at ordinary income rates for individuals worth over $10 million or earning above $1 million, alongside limits on corporate payout qualifications.

Investors are advised to curb yield-chasing strategies, migrating instead into broad market exchange-traded funds with minimal payouts around 1%, selling shares directly if cash flow is needed.

3. Estate and gift tax exemption

The current federal exemption stands at $15 million per individual and $30 million for married couples, indexed for inflation. Tallach notes a distinct possibility that this could drop back down to $7 million, though the 100% marital exemption is expected to remain untouched.

Retirees may benefit from making immediate gifts to descendants, as each exemption dollar holds greater value on a gift than a bequest because gift taxes apply after the transfer while estate taxes apply before. To mitigate risk, couples might exhaust one parent's $15 million exemption now to shield assets from future clawbacks.

4. Step-up in basis

The step-up in basis provision eliminates capital gains taxes on assets held until death, making it a prime target for revenue generation. Tallach anticipates a potential crackdown featuring a $5 million exemption to protect family homes and small estates.

Taxpayers holding heavily appreciated, underperforming assets purely for tax avoidance should reconsider and prune those overweight positions now.

5. Grantor Retained Annuity Trusts (GRATs)

GRATs allow individuals to place high-growth assets into a trust, returning an annuity to minimize the taxable remainder interest passed to children. With legislative proposals from Senator Wyden targeting loopholes like short-term trust rollovers and asset swaps, Tallach advises utilizing the strategy cautiously while extending GRAT durations to at least 10 years.

6. Pass-through deduction

The 20% business income deduction applies unevenly across self-employed individuals and professions, with plumbers qualifying while lawyers are excluded. While this segment may survive, real estate investment trust (REIT) shareholders face direct scrutiny from reformers.

Gig workers are encouraged to establish solo 401(k) accounts utilizing Roth contributions, while avoiding REITs altogether due to rising interest rates and impending dividend tax hikes.

7. Individual income tax rates

Top marginal income tax rates risk reverting to older, higher tiers like 39.6%. Taxpayers should evaluate accelerating Roth conversions before rates climb, keeping in mind exceptions for individuals requiring funds for nursing care or planning relocations to low-tax states.

While Congress is unlikely to tax Roth withdrawals directly, shortened withdrawal windows for non-spouse heirs may diminish their estate-planning utility.

8. State and Local Tax (SALT) deduction

The current SALT deduction cap is scheduled to drop in 2030, though political incentives to assist high-tax states may result in an extension. Taxpayers should map out projected income and itemized deductions over several years to optimize charitable giving and leverage standard versus itemized deductions effectively.