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Biden Eyeing Capital Gains Tax As High As 43.4% For Wealthy

April 22, 2021 • Laura Davison, Allyson Versprille

President Joe Biden will propose almost doubling the capital gains tax rate for wealthy individuals to 39.6%, which, coupled with an existing surtax on investment income, means that federal tax rates for investors could be as high as 43.4%, according to people familiar with the proposal.

The plan would boost the capital gains rate to 39.6% for those earning $1 million or more, an increase from the current base rate of 20%, the people said on the condition of anonymity because the plan is not yet public. A 3.8% tax on investment income that funds Obamacare would be kept in place, pushing the tax rate on returns on financial assets higher than the top rate on wage and salary income, they said.

Stocks slid on news about the plan, with the S&P 500 Index down as much as 0.6% after climbing 0.2% earlier. The Nasdaq Composite fell 0.4% as of 1:15 p.m. after rising as much as 0.5%. Ten-year Treasury yields erased gains.

The proposal could reverse a long-standing provision of the tax code that taxes returns on investment lower than on labor. Biden campaigned on equalizing the capital gains and income tax rates for wealthy individuals, saying it’s unfair that many of them pay lower rates than middle-class workers.

The White House and Treasury Department didn’t immediately respond to requests for comment. Biden is expected to release the proposal next week as part of the tax increases to fund social spending in the forthcoming “American Families Plan.”

For $1 million earners in high-tax states, rates on capital gains could be above 50%. For New Yorkers, the combined state and federal capital gains rate could be as high as 52.22%. For Californians, it could be 56.7%.

Democrats have said current capital gains rates largely help top earners who get their income through investments rather than in the form of wages, resulting in lower tax rates for wealthy people than those they employ. Republicans argue that current capital gains rates encourage saving and promote future economic growth.

This article was provided by Bloomberg News.

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[email protected] 3 years ago

First, this must be the most anti-business administration since O'Bama, proposing tax hit, after tax hit, after tax hit. (Corporate taxes, personal income taxes, transaction taxes, carbon (fuel) taxes. When will all of these economic drags end?) Now, we are printing money to create inflation and then taxing the inflation on asset prices. Why not inflation adjust capital gains, using a more accurate measure than CPI, by the way, and tax them at ordinary income rates, without the Medicare penalty tax? By this latest deterrent measure, against savers and investors, the various government entities will take away more than half of the gains from taking risk, so why bother? Many will ask this question on the margin, which will reduce the bid and velocity for capital, and economic growth. Recall that capital formation and property rights are the basis for the capitalistic system, and the policies of this administration attack both. If the Democratic Party of the US is not the Socialist Party, then they are every bit if it in fact, just not in name. Rather than attack the wealth creating and building tenets of capitalism, we need policies that encourage and support them, otherwise, businesses and entrepreneurs will go back to fleeing the United States and work their wealth creating magic overseas, as had been the case for many years, when our tax policies were more regressive than those of every one of our major trading partners. I like to consider myself an Independent, but this administration is making me want to retire, take up stakes and move overseas myself, so I can afford to retire before they destroy the whole system and rob me into poverty. The market certainly does not welcome higher taxes of any kind, but it is just a pass through mechanism. As we all know from economics, except those in various offices of government who apparently never studied it, all taxes are ultimately paid by individuals, as higher costs are passed through, and all businesses respond to higher taxes by shifting their activities to avoid them, to the extent possible, or they go out of business, as peers who are not subject to such higher fiat costs, under-price their goods and services and take the business. In these basic economic lights, all taxes above the rates that sovereign economic peers charge are harmful. One can criticize Donald Trump for many things, but in this regard, he understood economics better than any of his predecessors, and clearly much better than his successor. Even for those who do not like the man, they have to acknowledge that his lower corporate tax policy, and reduced regulatory burden policies greatly helped the United States economy rebound and retain businesses. Why should we abandon these virtuous policies, just because he lost the election?