Biden Administration Eyes Raising Capital Gains Tax to 43.4% to Fund $1.5 Trillion ‘Human Infrastructure Package’

US markets were sent into a tailspin on Thursday, after details surrounding the Biden administration’s “human infrastructure plan” and a subsequent tax hike on millionaire investors were exposed.

Earlier today, the New York Times revealed details of US President Joe Biden’s latest spending initiatives aimed at overhauling the American economy. Following weeks of tweaking, administration officials have finally prepared a final version of the second half of Biden’s “Build Back Better” agenda, which is separate from the $2.25 trillion American Jobs Plan unveiled last month.

The second phase, titled the American Families Plan, centers around social spending on “human infrastructure.” This includes funding for universal pre-kindergarten, expanded subsidies for child care, a national paid leave program for workers, and free community college tuition— all to the tune of billions of dollars each. The plan would also extend the expanded child tax credit — which was initially created as a temporary measure during the Covid-19 pandemic — through to 2025. In addition, an extension for the expanded Earned Income Tax Credit, which was part of the $1.9 trillion stimulus package, would also potentially be extended.

According to administration calculations, the American Families Plan would come with a price tag of around $1.5 trillion. To help alleviate the hefty cost, Biden proposes sweeping tax increases targeting America’s wealthy individuals, several of which were previously included in his campaign’s “Build Back Better” agenda. The first major tax overhaul would raise the corporate tax rate from 21% to 28%, as well as increase the top marginal income tax rate to 39.6% from 37%.

Now, new details have emerged surrounding yet another tax proposal, one that targets capital gains for wealthy individuals. Sources familiar with the matter revealed to Bloomberg that the president is proposing to nearly double the capital gains tax rate to 39.6%. When combined with the existing surtax on investment income, investors could potentially face tax rates as high as 43.4%.

The latest plan, which has not been made public yet, would push the capital gains tax from the current base rate of 20% to 39.6% for those individuals earning more than $1 million. When combined with the 3.8% tax on investment income — which is expected to remain in place — the new tax rate on returns from financial assets would be higher than the maximum rate on salary and wage income. If materialized, the proposal could unwind a long-standing provision of the US tax code, where taxes on labour are lower than those on investments.

Democrats have argued the current capital gains framework is unfair to middle-class workers, many of which pay higher rates relative to wealthy individuals. Conversely, Republicans argue that the current rates boost saving, while encouraging future economic growth. Following the news, US stocks slumped to session lows, with the Dow Jones falling by more than 400 points. The S&P 500 reversed previous gains and dropped 1%, while the Nasdaq Composite declined 1.1%.

Information for this briefing was found via the NYT and Bloomberg. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.

Leave a Reply