The 'ROBINHOOD Act' Slaps a 20% Tax on Business Loans for High Earners: What It Means for Capital Access

The “Redistribution of Billions by Instituting New High-Income Obligations on Overlooked Debt Act”—or the “ROBINHOOD Act”—is all about making certain types of borrowing significantly more expensive for high-income individuals. Specifically, this bill imposes a hefty 20 percent excise tax on the amount borrowed through certain secured loans or lines of credit, effective immediately upon enactment (SEC. 2).

This isn't a tax on income or profit; it’s a tax on the principal amount of the loan itself, paid by the borrower. The target audience for this new obligation is the “applicable borrower,” defined as any individual with an Adjusted Gross Income (AGI) greater than $400,000. If you’re under that AGI threshold, this specific tax doesn't apply to you. If you’re over it, you’ll be paying a fifth of your loan amount back to the Treasury Department right out of the gate.

The Cost of Capital Gets a 20% Surcharge

The tax only hits loans secured by “capital assets.” Think business property, equipment, or investment securities (SEC. 2). This means if a high-income individual wants to take out a $1 million line of credit secured by their business inventory or a portfolio of stocks to fund a new project, they don't just pay interest—they immediately owe the government $200,000 (20% of $1 million) as an excise tax. This dramatically changes the economics of using asset-backed financing for business expansion or investment.

To be clear, the bill carves out some important exclusions. Residential mortgages, home equity lines of credit (HELOCs), margin loans (loans secured by securities used specifically for trading), and loans secured by farmland are all exempt from this 20 percent tax. The focus is clearly on secured business and investment financing that uses non-real estate capital assets as collateral.

Who Feels the Pinch?

While the bill is aimed squarely at individuals with an AGI over $400,000, the real-world impact extends beyond personal finances. Take, for example, a successful small business owner who uses their $450,000 AGI to qualify for a secured line of credit backed by their company’s machinery. That 20% tax on the principal amount instantly makes that capital 20% more expensive than it would be for a competitor with an AGI just under the $400,000 cutoff. This could force high-income entrepreneurs to seek alternative, potentially less flexible, financing methods or simply forgo expansion plans due to the massive upfront cost.

This structure also raises immediate cash flow concerns. If a borrower takes out a loan on January 1, they are liable for a 20% tax on that principal amount for the taxable year. This tax liability hits immediately, potentially before the borrower has even generated revenue or profit from the loan proceeds. For those who rely on asset-backed credit to manage working capital or seize time-sensitive opportunities, this 20% immediate tax burden could be a non-starter.

In essence, the “ROBINHOOD Act” introduces a new, significant barrier to accessing secured capital for the highest earners, potentially reshaping how business assets are leveraged for growth and investment by this group. The Secretary of the Treasury is tasked with issuing guidance to implement this new tax, which will be crucial for understanding exactly how this 20% hit will be collected and applied in practice.