To pay for his ambitious agenda – which already includes trillions in infrastructure spending and hundreds of billions more to curb poverty, improve education, and fight scourges like cancer and climate change – President Joe Biden wants to raise taxes on the very rich.
On Thursday, a specific priority came into focus: the capital gains tax, which impacts income from asset sales. The Biden administration may attempt to double the current capital gain tax rate for wealthy individuals – from 20% to 39.6% – according to multiple sources.
The significant increase – which requires ever-tenuous Congressional approval – would reportedly apply to individuals making over a million dollars who have also reported investment sales. That’s not a lot of people – just 0.32% met that criteria in 2018, according to Bloomberg.
Funds raised from that tiny sliver of wealthy Americans would help pay for yet another element of the president’s four trillion dollar plan to reshape the economy. According to The New York Times:
The president will lay out the full proposal, which he calls the American Family Plan, next week. It will include about $1.5 trillion in new spending and tax credits meant to fight poverty, reduce child care costs for families, make prekindergarten and community college free to all, and establish a national paid leave program, according to people familiar with the proposal. It is not yet final and could change before next week.
With the American Family Plan, Biden seems to be targeting shortcomings in America’s global competitiveness. In 2018, the Organization for Economic Cooperation and Development revealed that the U.S. is the only country among 41 nations that does not mandate any paid leave for new parents (unlike, say, Mexico, Chile, and Latvia). Similarly, in 2020, The Lancet, a prestigious medical journal, found that “the U.S. now ranks below 38 other countries on measurements of children’s health, education, nutrition and survival.”
The conservative Wall Street Journal editorial board bemoaned Biden’s plan and his proposal to pay for it, writing “the lesson that investors should have learned by now is that Bernie Sanders was right when he predicted that Joe Biden would be the most left-wing President since FDR. Moderate Joe was always a mirage.” WSJ noted that the stock market dipped shortly after reports of the increased tax emerged.
(Important context: the S&P 500 keeps setting records. In fact, a day after the capital gains news, it’s currently fractions of a percentage point away establishing yet another all-time high. Of course, the market fluctuates.)
With the proposal, Biden is trying to seize on an ugly fact of the pandemic: while millions of low-paid workers lost paychecks and countless small businesses shuttered forever, investors made a fortune. From Bloomberg:
Surging stock and property prices over the past year only strengthened the Biden team’s determination to follow through on campaign pledges to demand higher taxes from the best-off. The president is betting the initiative will be popular enough to win passage in Congress, where he can’t lose a single Democratic vote in the Senate and only a handful in the House, since Republicans are likely to be united in opposition.
But even the ultra wealthy are taking Biden’s plan in stride. Goldman Sachs sent out a note on Thursday night titled “No Surprises in President Biden’s Reported Capital Gains Proposal. We expect Congress will pass a scaled back version of this tax increase.”
