President Joe Biden’s plan to nearly double taxes on capital gains for an estimated 500,000 top earners is already drawing scorn from some top Republicans who say it will curb investment by stripping away favored treatment for investment income.
‘It’s going to cut down on investment and cause unemployment,’ said Sen. Chuck Grassley of Iowa, a senior Republican on the Senate Finance Committee who helped push through the Trump tax cuts in 2017.
The longtime Iowa lawmaker pointed to pre-coronavirus economic gains, adding: ‘If it ain’t broke, don’t fix it.’
The hikes would have top earners paying up to 43.4 per cent, when an existing investment surtax is included. For those earning more than $1 million a year in high-tax states like New York and California, their total rate could be above 50 per cent.
Biden is planning to formally roll out his new plans next week as a way to pay for new investments in education, labor programs, universal pre-K, free college tuition for certain income levels, and other programs.
He also would hike the top income tax rate up from the current 37 per cent to 39.6 percent, where it was before the Trump tax cuts.
The top income tax rate rate applies to individuals making $523,601 this year.
For long-held capital gains, the top rate currently applies to those earning $445,850, or $501,600 for married couples filing jointly.
Republicans have started bashing President Joe Biden’s leaked tax plan to hike the top income tax rate while nearly doubling the capital gains rate
Along with an existing surtax on investments enacted as part of Obamacare, certain high-income people would pay federal taxes as high as 43.4 per cent.
At the White House, Press Secretary Jen Psaki stood firm on Biden’s campaign pledge not to raise taxes on those earning more than $400,000 per year. But she also signaled flexibility on the details of his tax plans.
‘He’s also open to discussion,’ she said.
Defending the potential hikes, she said: ‘It will only affect people making more than $1 million a yea. That’s .3 percent of taxpayers or 3 out of every 1000 tax payers,’ she said.
She was also asked at the White House about Thursday’s market drop. ‘I’ve been doing this long enough not to comment on movements in the stock market, but I did see just data factually that it went back up this morning,’ she said.
The move to bring capital gains taxes up to the level of how ordinary income is taxed would end a longstanding policy of providing preferred treatment for income on investments. The policy is meant to spur investment, although Biden and President Barack Obama before him long complained about ‘loopholes’ that allow some wealthy individuals to take much of their earnings at a lower rate than salaried employees on their staff who earn far less.
News of Biden’s tax plans prompted a market drop Thursdsay
Lawmakers reacted to leaks of President Joe Biden’s planned tax hikes
‘He’s also open to discussion,’ White House press secretary Jen Psaki said when asked about Biden’s tax plans
Long-term capital gains, currently taxed at the lower rate of 20 per cent, would be equalized at the higher level, nearly doubling.
Joe Biden’s tax hikes targeting the rich: Who will have to pay
Capital gains tax on investment sales for those earning more than $1million a year :
Current law: 20%
Around one million people in the US, or 0.32% of the population, have recorded a gross income of over $1million.
For those earning more than $1 million in high-tax states, the total rate will be even higher given the combined federal and state tax capital gains.
In New York it could be as high as 52.22% and for Californians it could be 56.7%
Wealthy residents pay Capital Gains on the growth in value of investments when they are sold. They are mainly placed on profitable stock trades and real estate deals. They can also apply to sales of collectible cars, art, businesses, gold.
Investors are taxed on the difference between what they paid for the asset and what they sold it for.
Investments held for at least one year tops out at 20% and those held under a year are taxed the same as salaries and wages. An additional 3.8% tax applies to those earning at least $200,000.
The US rate ranks in the middle of countries around the world.
Investors generally support lower capital gains tax because they say it rewards entrepreneurship and encourages people to sell what they own.
Current top rate: 21%
Proposed top rate: 28%
These hikes have already been proposed in the first part of his infrastructure plan.
He is also targeting US firms’ profits overseas and companies who use offshore businesses.
Biden has still vowed that no one earning under $400,000 a year will pay more taxes in his administration.
Those top rates aren’t for everyone. The maximum capital gains rate currently goes to individuals earning $445,850.
Biden’s proposed income tax hike would be for those earning more than $1 million a year.
According to Bloomberg News, which cited IRS data from 2018, 0.3% of Americans reported earning more than $1 million and capital gains or losses.
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.
Also bashing the proposal was Rep. Kevin Brady of Texas, the top Republican on the House Ways and Means Committee.
He called it an ‘economic blunder’ on Twitter, saying it ‘punishes investment in local biz, economy, technology, expansion. Result: slower growth & investment in U.S. Sabotages economic recovery. And future growth.’
The hikes would pay for Biden’s ‘human infrastructure’ plan, which is intended to compliment his $2.3 trillion infrastructure package – which on Thursday drew a smaller alternative proposal from a group of Senate Republicans.
House Democratic leaders might be able to push it through the House despite their razor-thin majority.
In the Senate, even if leaders try to move it through special reconciliation procedures, every Democrat would have to back it – leaving ample room for negotiation.
Democrats close to the White House are already signaling that a capital gains hike would have diminishing returns once it hits 30 per cent – raising the prospect of a negotiating session.
Biden’s pitch – which earned a ‘like’ that progressive firebrand Rep. Alexandria Ocasio-Cortez of New York attached to a news story about the proposals Thursday, would need to win over centrists like West Virginia Democratic Sen. Joe Manchin.
Manchin has resisted Democratic calls to change the filibuster while holding back support from some Biden nominations and proposals.
The House ‘problem solvers’ group of relative centrists on Friday came out for an indexed increase in gas taxes to fund infrastructure improvements, the Wall Street Journal reported.
‘We cannot afford four more years of crumbling bridges, roads, and tunnels, lead-filled pipes, and failed transportation, which is why the Problem Solvers Caucus is putting partisanship aside to find a solution that brings both parties to the table,” said Rep. Josh Gottheimer (D-N.J.)
The White House has yet to confirm the tax hikes that have been publicly reported – although the Dow Jones average dropped more than 300 points. The Dow ticked up more than 100 points Friday.
Charles Myers, the chairman of Signum Global Advisors, blasted the proposed hikes.
“Raising capital gains taxes hurts the capital markets,” he told Bloomberg News. “Better to raise the personal top marginal rate and estate tax. Leave capital gains and dividends alone,’ he advised.
Myers, a Biden campaign fundraiser, predicted a top rate totaling 43.4 per cent would not survive. ‘Over-taxing success is un-American,’ he said.