President Joe Biden plans on almost doubling the current capital gains tax rate, from 20% to a marginal rate of 39.6%.
Americans making more than $1 million will be pay 39.6%, and increases to 43.4% when you consider an existing surtax on investment income.
The purpose of the proposal is to help pay for the $2.25 trillion infrastructure initiative called the “American Jobs Plan” according to Bloomberg.
For investors earning more than $1 million in already high-tax states such as New York and California, tax rates on capital gains could be over 50%. Specifically, they could reach 52.22% in New York and 56.7% in California.
After the news broke, stocks fell, with the S&P 500 dropping 0.9% at its closing. Ten-year Treasury yields fell from a short-term high of 1.59% to 1.54%.
In a press briefing on Thursday, White House Press Secretary Jen Psaki was asked about the specifics of the plan. She responded “we’re still finalizing what the pay-fors look like.”
President Biden is expected to release more information on the proposal next week, in addition to other tax increases to boost spending for the “American Jobs Plan.”
“The President’s calculation is that there is a need to modernize our infrastructure, there is a need to invest in child care, there is a need to invest in early childhood education, and making our kids and the workers of the next generation more competitive,” Psaki told reporters.
Biden and his economic team believe that raising the capital gains tax will not have a negative impact on long-term investors. This tax alone is slated to raise $370 billion over a period of 10 years, according to the Urban-Brookings Tax Policy Center.
In addition to this tax, the Biden administration also plans to increase estate taxes for those earning more than $400,000.
Biden tax plan has been met fierce opposition from Republicans, who believe that the current taxes for the wealthy are more than plenty.
“It’s going to cut down on investment and cause unemployment,” said Chuck Grassley, top Iowa Republican and former chair of the Senate Finance Committee.
“If it ain’t broke, don’t fix it,” he said.
The consensus of most Democrats is that the taxation of investment should be similar to the taxation of wages.
“There ought to be equal treatment for wages and wealth,” said Ron Wyden, a Democrat and current Senate Finance Committee Chairman.
“On the Finance Committee we will be ready to raise whatever sums the Senate Democratic caucus thinks are necessary,” he said.