US President Joe Biden is to propose almost doubling the capital gains tax rate for wealthy individuals to 39.6 percent to help pay for a raft of social spending that addresses long-standing inequality, people familiar with the matter said.
For those earning US$1 million or more, the new top rate, coupled with an existing surtax on investment income, means that federal tax rates for wealthy investors could be as high as 43.4 percent.
The new marginal 39.6 percent rate would be an increase from the current base rate of 20 percent, the people said on the condition of anonymity, because the plan is not yet public.
A 3.8 percent tax on investment income that funds Affordable Care would be kept in place, pushing the tax rate on returns on financial assets higher than rates on some wage and salary income, they said.
The proposal could reverse a long-standing provision of the tax code that tax returns on investment are lower than on labor.
Biden campaigned on equalizing the capital gains and income tax rates for wealthy individuals, saying it is unfair that many of them pay lower rates than middle-class workers.
Asked about the capital gains plan at a press briefing on Thursday, White House press secretary Jen Psaki said: “We’re still finalizing what the pay-fors look like.”
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.”
Other measures that the administration has discussed in the past few weeks include enhancing the estate tax for the wealthy. Biden has warned that those earning more than US$400,000 can expect to pay more in taxes.
The White House has already rolled out plans for corporate tax hikes, which go to fund the US$2.25 trillion infrastructure-
focused “American Jobs Plan.”
Republicans have insisted on retaining the 2017 tax cuts implemented by former US president Donald Trump, saying that the current capital gains framework encourages saving and promotes future economic growth.
“It’s going to cut down on investment and cause unemployment,” US Senator Chuck Grassley, a top Republican on the Senate Committee on Finance and former chair of that panel, said of the Biden plan.
He lauded the result of the 2017 tax cuts, and said: “If it ain’t broke, don’t fix it.”
Republican lawmakers on Thursday called for repurposing previously appropriated, unused COVID-19 pandemic relief funds to help pay for their counteroffer infrastructure plan. The group underlined opposition to tax hikes, other than a potential revamp of the levies that go toward highway funding in a way that would cover electric vehicles.
Biden is to detail the American Families Plan in a joint address to the US Congress on Wednesday next week.
It is set to include a wave of new spending on children and education, including a temporary extension of an expanded child tax credit that would give parents up to US$300 a month for young children or US$250 for those six and older.
Biden’s proposal to equalize the tax rates for wage and capital gains income for high earners would greatly curb the favorable tax treatment on so-called carried interest, which is the cut of profits on investments taken by private equity and hedge fund managers.
The plan would effectively end carried interest benefits for fund managers making more than US$1 million, because they would not be able to pay lower capital gains rates on their earnings.
Those earning less than US$1 million might be able to still claim the tax break, unless Biden repeals the tax provision entirely.
The capital gains increase would raise US$370 billion over a decade, according to an estimate from the Urban-Brookings Tax Policy Center based on Biden’s campaign platform.
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