Biden aims to double capital gains tax for rich

President Joe Biden will propose almost doubling the capital gains tax rate for wealthy individuals to 39.6 percent to help pay for a raft of social spending that addresses long-standing inequality, according to people familiar with the proposal.

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 percent. The new marginal 39.6 percent rate would be an increase from the current base rate of 20 percent, the people said on the condition of anonymity because the plan is not yet public.

A 3.8 percent 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 down 0.9 percent at the close of the day. Ten-year Treasury yields fell to 1.54 percent from an intraday high of 1.59 percent before Bloomberg’s report.

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.

The White House didn’t immediately respond to a request for comment, and the Treasury Department

declined to comment. Biden is expected to release the proposal next week as part of tax increases to fund social spending in the forthcoming American Families Plan.

That proposal, expected to cost around $1 trillion, will come as Congress debates how to proceed on Biden’s separate $2.25 trillion infrastructure-focused package known as the American Jobs Plan, which would be funded by tax increases on corporations. It also follows the $1.9 trillion coronavirus relief bill passed in March.

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 a month for young children or $250 for those 6 and older.

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 hightax states, rates on capital gains could be above 50 percent. For New Yorkers, the combined state and federal capital gains rate could be as high as 52.22 percent. For Californians, it could be 56.7 percent.

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. Republicans argue that the current framework encourages saving and promote future economic growth.