The proposal is part of the White House’s drive for a major reform of the United States’ tax system, which will raise taxes on the wealthy and large corporations, and help pay for Biden’s aggressive economic agenda. According to sources familiar with the proposal, President Joe Biden would unveil a plan to raise taxes on the richest Americans, including the largest-ever rise in investment gains levies, to finance $1 trillion in healthcare, universal pre-kindergarten education, and paid leave for jobs. The proposal is part of the White House’s drive for a major reform of the United States’ tax system, which will raise taxes on the wealthy and large corporations, and help pay for Biden’s aggressive economic agenda. According to reports this week, the plan will raise the highest marginal income tax rate from 37% to 39.6%. That will also almost double capital gains taxes to 39.6% for those making more than $1 million a year.
It would be the highest rate on investment profits since the 1920s, and it would be paid mostly by the richest Americans. In the post-World War II period, the rate hasn’t risen above 33.8%. The plan, which was a key part of Biden’s presidential campaign agenda, sparked a dramatic sell-off on Wall Street, with the benchmark S& P 500 index falling 1% in the early afternoon, the biggest drop in more than a year. Any such increase will have to go through Congress, where Biden’s Democratic Party has a slim majority and is unlikely to gain Republican support. It’s still uncertain if it will receive unanimous Democratic support in Congress, which will be crucial in the Senate, where each party has 50 seats.
The stock market indices would be down 2,000 points, if it had a chance of passing, according to Thomas Hayes, chairman and managing director of hedge fund Great Hill Capital LLC. According to sources, more information will be published next week, ahead of Biden’s Wednesday address to Congress. In the coming days, the plan’s details will change. According to Reuters, White House officials are considering other tax rises that may be included in the final bill, such as capping deductions for rich taxpayers or raising the estate tax.
Biden has stated that he would not increase taxes on families making less than $400,000. The New York Times was the first to report on tax specifics related to the scheme, which has been in the works for months. President Barack Obama’s “American Families Plan” will be discussed during his address to Congress, according to White House press secretary Jen Psaki, who refused to elaborate. She said the administration’s funding plans were still being finalised, but she emphasised Biden’s commitment to make the rich and corporations pay for new initiatives. “In his opinion, it should be paid for by the richest Americans who can afford it, as well as companies and businesses that can afford it,” Psaki said.
She mentioned that Biden and his economic team did not believe the initiatives would harm the US investment. Treasury yields, which shift in the opposite direction of their price, hit a new low for the day.
GAINS IN CAPITAL
Biden’s latest initiative, which is expected to raise about $1 trillion, follows a $2.3 trillion employment and infrastructure package that Republicans have already slammed. They support infrastructure spending in general but are opposed to Biden’s inclusion of goals, such as extending eldercare and requiring corporations to foot the bill. Tax increases on the wealthy could exacerbate Republicans’ opposition to Biden’s new “human” infrastructure initiative, forcing Democrats to consider pushing it – or at least some of the initiatives – through Congress through reconciliation, a party-line budget vote.
Senator Joe Manchin, a moderate Democrat from West Virginia who wields disproportionate influence due to his party’s slim majority, recently expressed reservations about expanding reconciliation. According to Steve Chiavarone, a portfolio manager and equity analyst at Federated Hermes, Biden’s suggestion should be considered as a bold negotiation tactic. “Expect to get the biggest, baddest, most progressive policy ideas at least at first, with the expectation that they won’t get anything they want but will determine the negotiation’s reach. Even if Biden does not receive the necessary 39%, he will be elected.” He claimed that he will receive a 29 % tax rate.
Individuals with income of $200,000 or more ($250,000 married filing jointly) will be subject to a 43.4 % federal capital gains tax limit, which includes a 3.8 % net investment tax. The latter contributes to the funding of Obamacare, or the Affordable Care Act. Those making more than $200,000, now pay a capital gains tax of about 23.8 %, which includes the Obamacare net income tax. Individual single taxpayers with incomes above $523,600 and married couples filing jointly with incomes above $628,300, would pay a 37 % highest marginal tax rate in 2021.
The plan, according to Erica York of the Tax Foundation, would push the US capital gains taxes to the top of the global rankings. In Europe, the average capital gains tax rate is about 19.3%, with Denmark having the highest rate at 42 %. France and Finland both levied a 34% tax. According to York, Biden’s proposal will increase the overall capital gains tax to more than 50% for citizens of those states and cities, that assess their own capital gains levy. According to York, the rate in California will increase to 56.7 %, 68.2 % in New York City, and 57.3 % in Portland, Oregon.
