President Joe Biden has proposed several ambitious plans to create jobs, build infrastructure and better support middle and working class families. His most recent is the American Families Plan, which he wants the rich to help pay for through a series of tax hikes. Whether or not Congress will approve any of these proposals, you’re going to be hearing a lot about them from both sides of the aisle in the coming months. Here’s what Biden is proposing and who it will impact: Raise the top income tax rate The 2017 tax overhaul reduced the top income tax rate to 37% from 39.6%. Under the Biden plan, it would go back up to 39.6% for anyone in the top 1% of income. That’s roughly defined as someone with adjusted gross income of more than $540,000, according to tax year 2018 data from the IRS. Impose a higher capital gains tax The current capital gains tax rate varies based on how long you own an investment and what your income is when you sell it. The short-term capital gains rate is the same as your top income tax rate and applies to any investment you hold for less than a year before selling. The long-term capital gains rate is 0% if your taxable income is below $80,000. It is 15% if your income is between $80,000 and $441,500 (or $496,600 if married filing jointly). And it is 20% if your income is above those thresholds. Biden is proposing to raise the long-term capital gains tax on those with annual incomes over $1 million. So those investors would pay their top income tax rate on their capital gains, no matter how long they hold an investment. And, effectively, because investors at that income level also are subject to a 3.8% net investment income tax, their capital gains rate would be as high as 43.4%, up from 23.8% today. Eliminate the ‘step up in basis’ for some heirs Inheriting money is always a boon. But inheriting tax-free money is next-level boon. That’s been the case for children of parents who leave them estates with stocks and other investments that have appreciated since they were originally purchased. That’s because they get what’s called a “step up in basis.” Here’s how it works: Say your dad bought a stock at $50 a share and never sold it. When he dies it’s worth $85 a share and you inherit that stock. His basis is $50, but the $35 gain in share price that occurred before he died will never be taxed because your new basis will be $85 – the share price at your father’s date of death. So if you sold that stock right away at $85 you would owe no tax on the proceeds. That’s the benefit of the step up to heirs. The only capital gains tax you’ll ever owe is the difference between your $85 basis and the gain that accrues by the time you sell it. And if you never sell but instead leave the same shares to your kids, they’ll get another step up in basis from your $85 to whatever the share price is the day they inherit it. And the gain that had accrued from when you inherited it to the day you die – like your father’s original $35 gain – will never be taxed either. Biden’s plan would eliminate the step-up benefit for estates with gains of over $1 million ($2.5 million per couple). And he would tax some of the “unrealized” or paper gains from unsold investments in the estate. The gains over the $1 million mark would be taxed and the estate would foot that bill, said tax expert Len Burman, an Institute Fellow at the Urban Institute. As for your basis as the heir, it would still be the value of the investment on the date of your parent’s death. Biden has promised there would be special rules for farms and family-owned businesses to prevent the heirs from having to pay the taxes on a business they will continue to run. Tax carried interest as ordinary income Hedge fund managers, as well as managers of private equity and venture capital funds, pay a 20% tax rate on the part of their compensation known as carried interest – or 23.8% once you include the additional net investment income tax. Carried interest is a portion of the investment profits from the fund the manager oversees. Biden is proposing that carried interest be taxed as ordinary income, so the fund managers would have to pay the top income tax rate on it – either 37% under today’s tax system or 39.6% under Biden’s proposal, plus the 3.8% net investment income tax.