President Joe Biden, who promised on the campaign trail to raise taxes for the rich, plans to propose doubling the capital gains tax rate for people earning $1 million or more from 20 percent to 39.6 percent, pushing federal tax rates for some investors as high as 43.4 percent.
The proceeds will help pay for social spending that addresses inequality, according to people familiar with the proposal.
Capital gains taxes are assessed when assets are sold such as stocks, bonds, jewelry, coin collections, and real estate.
Stocks finished lower Thursday on the news as jobless claims fell to a pandemic low. Social media was lit up with complaints about Biden’s plan hurting cryptocurrencies. The price of Bitcoin fell from a high of $63,588 on April 13 to $48,678 on April 23.
“Western funds started offloading Bitcoin aggressively on the back of the Biden tax plan,” said Avi Felman, head trader and portfolio manager at crypto and blockchain investment firm in New York BlockTower Capital, Reuters reported.
During his run for president, Biden said it was unfair that many of the wealthy pay lower rates than middle-class workers. His proposal to raise taxes on the wealthy could reverse a long-standing tax code provision that taxes returns on investment lower than on labor.
Democrats have said that current capital gains rates unfairly help top earners who make their income through investments rather than salary and pay lower tax rates than the people who work for them.
Along with an existing surtax on investment income, federal tax rates for wealthy investors could be as high as 43.4 percent.
A 3.8-percent tax on investment income that funds Obamacare will be kept in place, according to anonymous sources. The White House has already rolled out plans for corporate tax hikes, which help fund the $2.25 trillion infrastructure-focused “American Jobs Plan.” And the administration has discussed enhancing the estate tax for the wealthy.
Republicans insist that former President Donald Trump’s 2017 tax cuts and that the current capital-gains framework are working. Biden’s capital-gains plan will cut down on investment and cause unemployment, said Sen. Chuck Grassley of Iowa, a top Republican on the Senate Finance Committee. “If it ain’t broke, don’t fix it,” Grassley said.
Senate Finance Committee Chairman Sen. Ron Wyden (D-Ore) told reporters, “There ought to be equal treatment for wages and wealth.”
Wealthy New Yorkers and Californians could be hit the hardest. For $1 million earners in these high-tax states, combined state and federal capital gains rates could be as high as 52.22 percent and 56.7 percent respectively.
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Biden’s proposed capital gains tax hike to 39.6 percent is expected to fail in the Senate. “A more modest proposal to raise long-term capital gains and qualified dividend tax rates from 20% to 28% would be much more likely to pass,” said Louis Navellier, chief investment officer at Navellier & Associates, in The Street.
Will Slaughter, a fixed income manager, knocked down the argument that the tax hike will hurt tech entrepreneurs and Silicon Valley — an argument he said is favored by renters and “the idle rich”.
“Today’s Silicon Valley giants- notably Apple & Microsoft- were founded in the mid 1970s when capital gains & unearned income tax rates were much higher than today,” Slaughter tweeted. “A 40% cap gains tax isn’t going to kill Silicon Valley or entrepreneurship. Great entrepreneurs hardly think about taxes when starting out. Cap gains tax complainers are mainly rentiers & the idle rich, who confuse market windfalls with the effort of building real businesses.”