Biden’s Proposal for a 44.6% Capital Gains Tax Rate Poses a Significant Burden, Especially for Wealthy Americans in 11 States.
In the wake of Joe Biden’s ambitious plan to hike capital gains tax rates, Americans in 11 states are bracing themselves for a hefty blow, with some facing over 50 percent taxation on their asset profits next year.
Under the president’s 2025 budget proposal, the top marginal rate on long-term capital gains dividends would skyrocket to a staggering 44.6 percent, marking the highest rate in a century since the tax was first introduced. This proposal represents a significant leap from the current rate, which sits below 25 percent, signaling a substantial increase in the tax burden on investors.
Critics, including many economic and tax experts, argue that such a drastic rise in the capital gains tax would have detrimental effects on investment incentives and the overall health of the U.S. economy. Despite claims from the Biden administration that the aim is to target the wealthy, skeptics like Dan Savickas, the Director of Policy for Taxpayers Protection Alliance, warn of unintended consequences. Savickas emphasizes that the proposed tax hike would discourage high-risk, high-reward investments crucial for small businesses and entrepreneurs, ultimately favoring established players and stifling smaller players’ access to capital.
Furthermore, when factoring in additional state taxes on capital gains, all but seven states would witness their total top rates surpass the 50 percent mark, amplifying the burden on taxpayers. California emerges as the hardest-hit state, with residents facing a combined capital gains tax rate of 57.9 percent, followed closely by New York and New Jersey tied at 55.5 percent. Minnesota and Oregon trail behind, with combined rates of 55.45 percent and 54.5 percent, respectively, under the proposed national and state rates.
The repercussions of Biden’s proposed tax hike extend beyond individual states, potentially spurring a detrimental exodus of capital from the U.S. market. Tal Zackon, co-founder, and CEO of TRES Finance, warns of this domino effect, where businesses relocate overseas to seek more favorable tax environments. Such a scenario could not only stifle domestic investment but also weaken America’s competitive edge in the global market.
It’s worth noting that this proposed hike would primarily impact individuals with taxable income exceeding $1 million and investment income surpassing $400,000. Even historically high rates during President Jimmy Carter’s era pale in comparison, reaching a peak of 40 percent in the late 1970s.
As the debate over Biden’s tax plan unfolds in Congress, the potential ramifications loom large. The prospect of implementing the highest capital gains tax in U.S. history raises concerns about its long-term effects on economic growth, investment, and America’s position in the global marketplace.
