U.S. Democrats are proposing to raise the top tax rate on capital gains and qualified dividends to 28.8%, one of several tax reforms aimed at wealthy Americans to help fund a $3.5-trillion U.S. budget plan.
The top federal tax rate would be 25% on long-term capital gains, which is an increase from the existing 20%. Long-term capital gains are incurred on appreciated assets sold after more than one year of ownership. Added to an existing 3.8% surtax on net investment income and the total tax increase would be 28.8%.
The new tax rate would apply to stock and other asset sales that occur after September 13, 2021; the date House Democrats introduced the tax portions of their budget legislation.
Starting in 2022, taxpayers would incur the top federal rate if their taxable income exceeds $400,000 U.S. for a single payer, $425,000 U.S. of household income and $450,000 U.S. for married couples who file their taxes jointly.
That aligns with a pledge by U.S. President Joe Biden not to raise taxes for households making less than $400,000 U.S. However, it’s lower than the current income thresholds at which the top rate applies.
The capital-gains policy differs from one previously floated by the White House, which had called for a top combined tax rate of 43.4% on people whose income exceeds $1 million U.S.
Democrats want to make the tax code more equitable and raise trillions of dollars to expand the country’s social safety net and make investments to curb climate change. Those changes are expected to cost up to $3.5 trillion U.S.
The new tax proposals aren’t a done deal though. Passing legislation may not be an easy lift given Democrats’ razor-thin margins in Congress and unified Republican opposition.
