President Biden’s latest proposal to increase the top capital gains tax rate to 44.6% is facing criticism from experts who warn that such a move could harm the U.S. economy. According to a report from the Treasury Department, increasing the top marginal rate on long-term capital gains and qualified dividends to this level would be the highest in over a century. Economist E.J. Antoni from The Heritage Foundation pointed out that investment is a key driver of economic growth, and taxing capital gains could lead to less investment, slower economic growth, and a decline in people’s standards of living.
The Treasury Department’s report states that the 44.6% rate is a result of various proposals, including raising the top ordinary capital gains rate from 20% to 37%. The bulk of the tax hikes would affect Americans with taxable income over $1 million. However, experts like Antoni argue that such a tax hike could have far-reaching economic impacts, including taxing inflation. Increasing capital gains taxes could also create an incentive for policymakers to maintain high rates of inflation to generate larger tax revenues.
Americans for Tax Reform Director of Federal Tax Policy, Mike Palicz, highlighted the potential negative impacts of Biden’s tax proposals, stating that they could lead to higher taxes on income, potentially exceeding 50% when combined with state taxes. The proposal could also disadvantage small business owners who may be subjected to the high rate when selling their businesses. Additionally, Biden’s plan includes a mandatory capital gains tax on transferred assets for families following the passing of parents and a 25% tax on unrealized capital gains for individuals with wealth over $100 million.
Overall, these new taxes, along with the substantial increase in capital gains tax, are projected to generate almost $800 billion in new government revenue. However, Antoni cautioned that the assumption that people will not change their behavior in response to these higher tax rates may not hold true. The impact of these tax hikes on economic growth, investment, and individuals’ financial well-being remains a concern for critics of the proposal. The Treasury Department did not provide a response to requests for comment on the issue.
