Net Capital Gains Tax Would Approach a Whopping 60% Under Biden's Proposal

Mish

Progressives seek whopping increases to support what they call the "America Family Plan", radical Left agenda with a clever name.

Biden's Tax Proposals Keep Expanding 

Please note that Progressives have their eyes fixated on a 43.4% Capital Gains Tax. 

Leakers told Bloomberg that Mr. Biden will tax capital gains for taxpayers who earn more than $1 million at the personal income tax rate, which he also wants to raise to 39.6% from 37%. Add the 3.8% ObamaCare tax on investment, and you get to 43.4%. And that’s merely the federal rate. Add 13.3% in California and 11.85% in New York (plus 3.88% in New York City), which also tax capital gains as regular income, and you are heading toward the 60% rate range.

Keep in mind this is on the sale of gains that are often inflated as assets are held for years without adjustment for inflation. Oh, and Mr. Biden also wants to eliminate the step-up in basis on capital gains that accrues at death. 

Tax Foundation Notes

  • President Biden’s #AmericanFamilyPlan will likely include a large increase in the top federal tax rate on long-term capital gains and qualified dividends, from 23.8% today to 39.6% for higher earners.
  • When including the net investment income tax, the top federal rate on capital gains would be 43.4%. Rates would be even higher in many U.S. states due to state and local capital gains taxes, leading to a combined average rate of 48% compared to about 29% under current law.
  • Under President Biden's tax plan, 13 states and D.C. would have a top combined capital gains tax rate at or above 50%: 56.7% CA 54.3% NY 54.2% NJ 53.3% OR 53.3% MN 52.4% DC 52.2% VT 50.7% HI 50.6% ME 50.4% CT 50.3% ID 50.2% NE 50.2% MT 50.0% DE (58.2% NYC) (57.3% Portland, OR)

The above is from a Series of Tweets by the Tax Foundation. 

What's Going On?

In a nutshell, Biden's tax proposals keep getting more and more radical.

There is no way these ideas will pass in the Senate. 

Currently, two Democrat Senators stand in the way of these tax hikes. They are Senator Joe Manchin of West Virginia and Senator Krysten Sinema from Arizona.

Biden will place tremendous pressure on those two Senators.

While it is highly unlikely they would go for anything as radical as what Biden now proposes, the more ridiculous Biden sets the initial bar, the higher the final compromise. 

House Math 

Biden's problem is not just with the Senate. Democrats hold a very narrow majority in the House. 

On April 14, Fox News reported House Democratic margin shrinks to 2 votes with swearing-in of Republican Julia Letlow.

That gives Republicans 212 seats to 218 for Democrats. 

Tie votes fail in the House so the loss of just 3 votes would kill a bill. 

Democrats are favored in two of the three House special elections that will be held over the next two months.

That would make it 220-213 with one more special election on November 2, also slated to go blue ultimately making it 221-213 if things go how they now lean.

At 220-213, Democrats cannot afford to lose 4 votes.

Still More Complications 

I recall there are roughly a dozen Democrats in districts that Trump won or the Democrat Representatives barely won their races. 

If accurate, that makes the math even more daunting, especially as a number of Democrat House members have unique tax demand of their own to increase the SALT (State and Local Income Tax) deduction as it used to be.

Enter Jerry Nadler

"No one should ever be taxed twice on the same income. It's not fair and it's not just."

I certainly agree! 

Unfortunately, Nadler does not mean what he says, but the key point is seventeen Members of the NY House delegation agree on SALT.

Where is This Headed? 

I am no longer certain the House can pass anything at all that the Senate with different priorities will go along with. 

Meanwhile, the more demands the progressives make, the more likely they come away with nothing at all.

Ultimately, after a long period of bickering, I do expect a more modest increase in taxes than what we see on the table now.

Mish

Comments (78)
No. 1-30
Eddie_T
Eddie_T

There’s just no end.....no matter how much revenue they get, they can always spend a lot more, and then the impetus is to come back for an even bigger bite.

This is why a lot of decent people vote Republican, even though they might not like everything about the GOP, or their candidates, or much else.

When so many people are entitled to so many things they would never provide for themselves, even if they could, this is where we end up.

And they wonder why so many are renouncing citizenship and voting with their feet.

Dr. Manhattan23
Dr. Manhattan23

If you put the government in charge of the Sahara desert, you will have a shortage of sand in 5 years.....Milton Friedman

True words lol

Zardoz
Zardoz

Radical? Every dollar they get is a dollar less borrowed, and it's not coming out of my pocket for once.

I'll complain when I'm the one being taxed.

TexasTim65
TexasTim65

Obama added 8.5 Trillion in debt in 8 years. Biden's family recovery plan proposal in addition to his first 2 spending plans means he wants to add 7 Trillion in 3 months!

Even 100% capital gains tax won't pay for all this. If you spent 1 million dollars a day from the day Christ was born until today you still wouldn't have reached 1 trillion never mind what the US debt is. It's madness.

This tax will drive the rich to do all their trading via offshore hedge funds which won't be subject to his tax. Presumably it also means all real estate will go into family trusts to avoid the capital gains taxes.

Biden seems determined to sink the stock market and if he manages to do that it's going to make legions of middle class people unhappy as their 401k retirement gets wiped out and they simultaneously get higher local taxes to bail out pension funds like Calpers that will be even more underfunded.

Jojo
Jojo

Stuff needs to be fixed and someone has to pay for it. Remember that old story about Willie Sutton when asked why he robbed banks, replied "Because that is where the money is"?

You can't get money from the people who don't have much of it and are barely making a living. You know, all those people who we saw waiting in hours long food lines for a box or two of food?

I live in an area where a 1200 sqft home can sell for $2 million. Where every other car is a Tesla S, Mercedes, Porsche, BMW, Range Rover, big Lexus, etc. Money isn't in short supply hereabouts. If you are making $300-400k plus, you should be able to pay a bit more in taxes w/o crying into your milk.

So instead of the usual whining, what's the realistic plan to pay for what needs to be done. Remember, I said "realistic", not some silly ass proposals like a flat tax or Vat tax or remove tax deductions that has about zero chance of ever getting passed.

Doug78
Doug78

Increasing the Federal tax rate by the amount the Democrats are proposing would decrease the percentage difference in tax rates between Blue and Red states thereby decreasing the fiscal attractiveness of Red states.

If we use an analogy and use the price of a gallon of gas in lieu of taxes we can see how it works. Assume you live in a state without gas taxes and that a gallon costs one dollar. The state next door has a 50 cent gas tax making a gallon there cost $1.50. Consequently people in that state have a strong incentive to drive to your state to fill up because they save a lot of money. They see it as getting 50% more gas for the same amount of money. Next assume Democrats win the Federal elections and put on a Federal gas tax of $3.00. Gas in your state is now at $4.00 and gas at the state next door is at $4.50. The incentive to drive to your state to fill up goes down because now because they are saving only 12.5% of their gas bill now even if they would save the same amount in dollar terms. The perception of savings by making the drive to fill up collapses. Seems hardly worth it now.

I wonder if that is the real reason for the absurd increase of tax rates proposed by the Democrats. If you add bringing back the SALT deductions then the competitive advantage of the low-tax Red state disappears. If that is the case then it is not a negotiating position but an objective.

Johnson1
Johnson1

Greatest recession ever.

Global household added 5 trillion to savings accounts in 2020. 2 trillion for the US. Question? How much will be spent on pent up demand?

Lance Manly
Lance Manly

This would only apply to those pulling a million in capital gains, I think about .4% of the population. Why should investment be advantaged over labor. The marginal tax on a person making $40,526 to $86,375 is 22%, and in 6.2% which means that they are paying 28.2% tax for actually doing something. Meanwhile an investor pulling in a million is only paying 20% while sitting on their butt.

whirlaway
whirlaway

Mish, tell me if it impacts someone with $60K in annual income and $12K in short-term capital gains. If it doesn't, go screw yourself!

whirlaway
whirlaway

Exactly! I have no time to listen to the whines of the people who sit in their ivory towers while everyday Americans literally risk their lives in a pandemic-riddled world, doing real essential work and providing real essential services.

If it increases the tax on someone who makes money pushing the mouse in their offices (or letting a computer do even that stuff for them) then so be it. I am sick and tired of these *&^@%#s!

PostCambrian
PostCambrian

Hopefully there will be some thought put into the capital gains tax proposals. All we have now is a leaked top tax rate. The amount might make sense for short term capital gains (would also reduce speculation) but it definitely wouldn't make sense to tax the capital gains of something held for 20 years at the same rate as something held for 1 year. The compounding of values over 20 years is much higher than the single year.

A better way to avoid the change in basis at death (or inheritance) is to have a lower estate tax exemption. Give the change in basis value when the estate tax is paid.

davebarnes2
davebarnes2

I am not upset.

numike
numike

Mr. Purple
Mr. Purple

Proves it's ALWAYS about class. Race is just a distraction.

RonJ
RonJ

"Biden's Tax Proposals Keep Expanding"

Klaus Schwab: You will own nothing and be happy.

The goal of the World Economic Forum.

Retired from IRS
Retired from IRS

I would like the entire tax code to return to what it was under Bill Clinton pre 1997 - same tax rates (adjusted for inflation), same depreciation rules, same tax credits, with elimination of the heavily abused research tax credit, conservation easement charitable contribution, and captive insurance companies. I also believe the age for required minimum distributions from retirement plans should be lowered to 62. The American public should pay for the government it wants with taxes - not Federal Reserve money printing. The sad truth is only libertarians like Mish want massive cuts in defense and social spending, and that is just a tiny percentage of the public.

Mish
Mish

Editor

Apologies for slow posting today.
I am working on video ideas and will soon be producing my own videos regularly - once a week or so - with a guest - and an external producer

njbr
njbr

A story of capital gains....

Hometown International, a mysterious $100 million company that owns just one tiny New Jersey deli [annual sales $35,000], is linked in multiple ways to another odd company, E-Waste.

E-Waste’s stock, like that of deli owner Hometown International, has soared in the past year, also giving it market capitalization of more than $100 million earlier this month.

E-Waste CEO John Rollo recently had a job that is unusual for the head of a company that on paper is worth tens of millions of dollars: a patient transporter at a northern New Jersey hospital.

Peter Coker Sr., a North Carolina businessman, is connected to both companies. Coker son Peter Jr. is chairman of the deli company, whose CEO is high school principal and wrestling coach Paul Morina.

oee
oee

Great if the plan is passed! Party time for the Top .3% is over! It is time for working Americans to finally realized that the elites have seceded from the country. They live in gated communities, take their children from good public schools to private schools, and jet around in their private jets, which is good but they want everyone else to subsidize their lifestatly. In fact, they do not want to pay taxes anymore!

Sechel
Sechel

Shipping emits 3% of all greenhouse gas emissions. The shipping industry thinks it has a solution with Hydrogen that may be viable in a few short years using ammonia based engines that with ammonia created using green technologies

Siliconguy
Siliconguy

Washington State is likely to pass a capital gains tax. The State constitution prohibits an income tax, so the Legislature has decreed that capital gains are not income.

Johnson1
Johnson1

I am guessing we will see a lot of hedge funds move to Atingua and Barbudu or some other safe have Caribbean island to avoid Cap gains

1911colt
1911colt

They'll just figure out a way to exclude sitting politicians so it will pass unanimously

1911colt
1911colt

Watch. They'll just exclude sitting politicians and it will pass unanimously.

LawrenceBird
LawrenceBird

You speak of the gains not being inflation adjusted but fail to mention that you are paying the tax with depreciated dollars as well.

The end game is putting the cap gains back to the 28% it was before which is fine. Country survived a long time with it contrary to GOP led hysteria.

I'm also a very strong advocate for ending the stepped up basis. Taxes owed should not depend on whether the deceased sold the day before they died or their heirs did the day after.

tommybahama
tommybahama

WA state now incorrect. WA just passed a 7% tax on long-term capital gains for its residents, making the top total long term capital gains rate a whopping 50.4% !!

Deguello
Deguello

The Swamp plays the market also, plus Congress has no rules against inside trading from working on legislation effecting the stocks they buy. Why would they vote on increased taxing of their own game?

George_Phillies
George_Phillies

Ummh, Massachusetts has a separate tax bracket for collectibles and short-term capital gains. It is 12%.


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