For those earning $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%. 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, pushing the tax rate on returns on financial assets higher than rates on some wage and salary income, they said.
Stocks slid the most in more than a month on the news, with the S&P 500
The proposal could reverse a long-standing provision of the tax code that taxes returns on investment lower than on labor. 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.
White House Press Secretary
Other measures that the administration has discussed in recent weeks include enhancing the estate tax for the wealthy. Biden has warned that those earning over $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 $2.25 trillion infrastructure-focused “American Jobs Plan.”
Republicans have insisted on retaining the 2017 tax cuts implemented by former President
“It’s going to cut down on investment and cause unemployment,”
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 hikes, other than a potential revamp of the levies that go toward highway funding in a way that would cover 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
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%.
Democrats have said current capital gains rates largely help top earners who get their income through investments rather than in the form of wages, resulting in lower tax rates for wealthy people than those they employ.
Capital gains taxes are paid when an asset is sold, and are applied to the amount of appreciation on the asset from when it was bought to when it is sold.
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
(Updates with market close in fourth paragraph, carried interest background in 12th paragraph.)
--With assistance from
Scott Lanman, Christopher Anstey
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