U.S. President Joe Biden will propose almost doubling the capital gains tax rate for wealthy individuals to 39.6%.
Taken together with an existing surtax on investment income, the new capital gains tax could push the federal tax rate for investors as high as 43.4%, according to multiple media reports.
Biden’s proposal would boost the capital gains rate to 39.6% for people earning $1 million U.S. or more, an increase from the current base rate of 20%. A 3.8% tax on investment income that funds Obamacare would be kept in place, pushing the tax rate on returns of financial assets higher than the top rate on wage and salary income.
Stocks dropped Thursday (April 22) on news of the tax hike, with the S&P 500 Index down 0.7% and the NASDAQ down 0.6%. Ten-year Treasury yield also erased gains on the news.
The proposal could reverse a long-standing provision of the tax code that taxes returns on investment lower than on labour. Biden campaigned on equalizing the capital gains and income tax rates for wealthy individuals, saying it’s unfair that many of them to pay lower rates than middle-class workers.
President 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.” That proposal, expected at around $1 trillion U.S., will come as Congress debates how to proceed on Biden’s separate $2.25 trillion U.S. infrastructure-focused package known as the "American Jobs Plan."
The families plan 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 $300 U.S. a month for young children or $250 U.S. for kids aged six and older.
Biden’s capital gains increase would raise $370 billion U.S. in additional tax revenue over a decade, according to an estimate from the Urban-Brookings Tax Policy Center.
