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Biden Aims at Top 0.3% With Bid to Tax Capital Gains Like Wages

Stock MarketsApr 23, 2021 03:09AM ET
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© Reuters. Biden Aims at Top 0.3% With Bid to Tax Capital Gains Like Wages

(Bloomberg) -- President Joe Biden wants to end the preferential U.S. tax treatment of investment income that has benefited the nation’s wealthy as he seeks to fund a sweeping new social-spending program. But he will need to overcome a major political hurdle in Congress to do so.

The White House plans to propose almost doubling the capital gains tax rate for those earning $1 million or more, to 39.6%, according to people familiar with the proposal. That wouldn’t affect many. Only about 0.32% of American taxpayers reported adjusted gross income of more than $1 million and capital gains or losses on their returns, according to Internal Revenue Service tax return data from 2018.

The move would send the top federal rate on the appreciation in assets sold by the rich as high as 43.4% when including a surtax to help pay for Obamacare. And it would upend a century-old precedent of under-taxing investment relative to wages and salaries.

Surging stock and property prices over the past year only strengthened the Biden team’s determination to follow through on campaign pledges to demand higher taxes from the best-off. The president is betting the initiative will be popular enough to win passage in Congress, where he can’t lose a single Democratic vote in the Senate and only a handful in the House, since Republicans are likely to be united in opposition.

Stocks dropped the most in more than a month on the news Thursday, with the S&P 500 Index closing down 0.9%, though futures trading early Friday in Asia suggested some stabilization.

“If a 1% fall in stock prices is all that you get from a really major increase in capital gains taxes that’s not a big problem,” Nobel economics laurate Paul Krugman said on Bloomberg TV. “Biden has an ambitious agenda” and to help pay for it, “some significant tax increases are going to be part of the story,” he said.

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 new marginal 39.6% rate would be 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, they added.

Next Week

White House Press Secretary Jen Psaki, asked about the capital-gains plan at a press briefing Thursday, 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 finance social spending in the forthcoming American Families Plan.

Other measures that the administration has discussed include enhancing the estate tax for the wealthy. Biden has warned that those earning more than $400,000 a year can expect to pay more in taxes. The White House has already rolled out plans for corporate tax hikes, which go to fund the $2.25 trillion infrastructure-focused American Jobs Plan.

Republicans have insisted on retaining the 2017 tax cuts implemented by former President Donald Trump, and argued that the current capital-gains framework encourages saving and promotes future economic growth.

“It’s going to cut down on investment and cause unemployment,” Chuck Grassley of Iowa, a top Republican on the Senate Finance Committee and former chair of that panel, said of the Biden capital-gains plan. He lauded the result of the 2017 tax cuts, and said, “If it ain’t broke, don’t fix it.”

GOP lawmakers on Thursday called for repurposing previously appropriated, unused pandemic-relief funds to help pay for their counteroffer infrastructure plan. The group underlined opposition to tax increases, other than a potential revamp of the levies that go toward highway funding in a way that would mean higher taxes on electric vehicles.

Biden will detail the American Families Plan in a joint address to Congress on April 28. 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 as much as $300 a month for young children or $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 $1 million, because they wouldn’t be able to pay lower capital gains rates on their earnings. Those earning less than $1 million may be able to still claim the tax break, unless Biden repeals the tax provision entirely.

The capital gains increase would raise $370 billion over a decade, according to an estimate from the Urban-Brookings Tax Policy Center based on Biden’s campaign platform.

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%.

“It’s enough to bring fear into the taxpayers’ hearts, whether they are a Republican or a Democrat,” Christopher Boyett, a partner at law firm Holland & Knight who advises high-net worth individuals on tax planning, said of the Biden plan. “People are taking this seriously. It’s a high-anxiety time.”Congressional Democrats have separately proposed a series of changes to capital-gains taxation, including imposing the levies annually instead of when they are sold.

“There ought to be equal treatment for wages and wealth,” Senate Finance Committee Chairman Ron Wyden, an Oregon Democrat who’s the chamber’s top tax-writer, told reporters in a phone briefing Thursday. “On the Finance Committee we will be ready to raise whatever sums the Senate Democratic caucus thinks are necessary.”

Biden Aims at Top 0.3% With Bid to Tax Capital Gains Like Wages
 

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Comments (9)
John Shiels
John Shiels Apr 23, 2021 9:30PM ET
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Look out, a six year old has taken the wheel of the eighteen wheeler. No air bags. Repeat: NO AIR BAGS.
Kelly Mayer
Kelly Mayer Apr 23, 2021 7:18PM ET
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How much of the US economy is connected to those 0.32% ?
Fernando Lazarini
Fernando Lazarini Apr 23, 2021 7:18PM ET
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More than u can imagine. They´re highly productive workers, certainly their end results permeates much of the economy; u can expect more cost of living as they shall pass this costs on consumers, as well as their investment rate will drecrease to pay off taxes, so, less jobs they will help create, be in discretionary consumption, be in capacity increase.
Richard Van Sant
Richard Van Sant Apr 23, 2021 6:58PM ET
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This will tank the market and the 401k’s with it. The middle class will be hurt the most.
Holdmah Furzy
Holdmah Furzy Apr 23, 2021 10:15AM ET
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Since 2009 the Fed and the Treasury have worked in tandem to simply print, through debt monetization, all of the money needed to fund the annual budget deficits. Having found out that this can apparently be done without penalty, Democrats in particular, and Republicans to a lesser extent, have embarked on a program of higher and higher deficits funded by the printing press. So, my question is, since they’ve proven that they can just print up all the money they want to spend, why increase taxes at all?  Just print up some more and party on!  There can be no other reason to raise taxes now other than class-envy and trying to “even things up” with dirty rich people.
Steve Lora
Steve Lora Apr 23, 2021 10:05AM ET
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Democrats are the tax party. Ppl vote them in because of social issues. its like a cult plantation
Benjamin McIntire
Benjamin McIntire Apr 23, 2021 10:05AM ET
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Steve working at McDonalds complaining about Tax hikes on millionaires. You have been well trained.
Clinton Powell
Clinton Powell Apr 23, 2021 10:05AM ET
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Benjamin McIntire Yep go make a couple more Robinhood trades see whose oaying more??!!!Do you drink BennyCause your commentary sounds like you do...
William McWade
William McWade Apr 23, 2021 8:52AM ET
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Hostile-Woods, can you hear him!?   He's planning on taxing even the air that you breathe, hear him. You got what ya' wanted.  Say it ain't so.  He's gonna' mess you all up now; take your yachts 'n jets, 'cause he's the tax man.... Oh, yeah!   He's the tax man!!
Benjamin McIntire
Benjamin McIntire Apr 23, 2021 8:52AM ET
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Rofl, what
David Scuncio
David Scuncio Apr 23, 2021 7:58AM ET
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one day the rich are going to say enough
Steve Lora
Steve Lora Apr 23, 2021 7:58AM ET
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The rich know how to hide money. Taxes will be received via hidden means. Local cities will raise property taxes, set up rada 24/7, write parking tickets, raise tolls and the gasoline tax. If you live in a Democrat run city thats 100k population, chances are its in the red. The ghetto mayors cant print cash or they would. They'll go after local businesses and next comes the plywood in windows For Lease
Benjamin McIntire
Benjamin McIntire Apr 23, 2021 7:58AM ET
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Steve Lora ok so the rich hide the money and this doesnt matter at all then right? Nothing to worry about then ya?
Clinton Powell
Clinton Powell Apr 23, 2021 7:58AM ET
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President Xi Jinping
President Xi Jinping Apr 23, 2021 3:50AM ET
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Should have trickled it down rather than hord the subsidies, credits, and loop holes.
Pat Mathieu
Pat Mathieu Apr 23, 2021 3:27AM ET
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Their idea of 'equality' is always to increase taxes of those who pay less to those who pay more.
David Scuncio
David Scuncio Apr 23, 2021 3:27AM ET
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President Xi Jinping   well maybe if you were smart enough to make money you would be using all the same so-called  loopholes
 
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