Taxes

Biden Calls For Big Tax Hikes On Rich Investors

SK Ashby
Written by SK Ashby

President Biden's "Build Back Better" infrastructure spending proposal was split into two parts with the American Jobs Plan representing the most tangible investment in the infrastructure we all use every day. The second part, which is now being referred to as the American Family Plan, will focus on education and child care among other things.

The Biden administration has called for raising corporate tax rates to partially pay for the American Jobs Plan, but the American Family Plan could raise taxes on the richest Americans more directly by increasing the tax on capital gains.

Even though the richest people in the world owe most of their wealth to investments, investment income is actually taxed at a lower rate than the individual income tax that average working people pay. The American Family Plan would make the taxes equal.

From Bloomberg:

President Joe Biden will propose almost doubling the capital gains tax rate for wealthy individuals to 39.6% 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%. The new marginal 39.6% rate would be an increase from the current base rate of 20%, the people said on the condition of anonymity because the plan is not yet public. [...]

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.

Republicans are undoubtedly going to blast this proposal, of course, but whether or not this could ever actually happen will primarily rest with the likes of Senators Joe Manchin and Kyrsten Sinema.

Theoretically speaking, if congressional Democrats can pull together all 50 of their votes and use budget reconciliation to pass this proposal, I would not expect to see it happen this year.

Democrats and the White House are aiming to pass the American Jobs Plan this summer and that will leave scant time to debate and write another significant spending package between summer recess and the holiday season.

But you know what? I think that's fine. I think passing this in the spring of 2022 would be a pretty potent message to campaign on in the midterm elections. Establishing universal child care by taxing rich investors would sell itself and I think that would have been the case even before the coronavirus pandemic forced most children to stay home for a year. Even parents for whom child care was not a large concern in the past now know what a burden it has been for everyone else all along.