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
Ummh, Massachusetts has a separate tax bracket for collectibles and short-term capital gains. It is 12%.
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?
Because we need money to fix shit and not fixing it isn’t an option?
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% !!
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.
Watch. They’ll just exclude sitting politicians and it will pass unanimously.
They’ll just figure out a way to exclude sitting politicians so it will pass unanimously
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
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.
Where there is a will, there is a way.
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
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!
Speaking of jetting around…
Super-rich scramble to beat travel ban as India put on red list
Friday April 23 2021, 12.00pm, The Times
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.
A price-to-sales ratio of “only” 6,710. What a bargain!!!!
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
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.
The reality we face is two choices: GOP borrow and spend or Democrat tax and spend.
Until such a time as politicians and the people who put them in power decide that the size and scope of government programs must be drastically reduced, tax and spend is the better option as it does not burden future generations with the wasteful fancies of their parents.
“Biden’s Tax Proposals Keep Expanding”
Klaus Schwab: You will own nothing and be happy.
The goal of the World Economic Forum.
Proves it’s ALWAYS about class. Race is just a distraction.
Matt is very good.
The best imho.
One of the few truly independent journalists
I am not upset.
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.
The real question is the taxes paid by the investment class vs the taxes paid by the working class. Now the investment class is given a huge advantage.
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!
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!
Do you own a house (or stand to inherit one/401K)?
If say you sell a home with say 1.5 million in gains then your income in that year will be 1 million dollars and you will be subject to the top rate even if all your other years you are not.
Even if your home didn’t appreciate by 1 million plus but only 700K (which is quite common in a lot of areas) you’d be a long way toward the max tax rate.
Gosh! I forgot! LOL. Selling a house for 700K to 1.5 million dollars in cap gains… Of course, every Tom, Dick and Harry is in that situation!!!! 😀
Hilarious! I want to live in YOUR neighborhood!
In Massachusetts, that $12K in capital gains is taxed at 12% by the state.
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.
It’s a million in income, not a 1 million in capital gains. A slight difference obviously.
It will affect people who sell / inherit homes that have appreciated by a few hundred K because that will be a 1 year jump to a different tax bracket where you are affected by this tax.
What is “a few hundred K”???? For single filers, up to 250K of gains is sheltered from cap gains tax, and for couples, it is 500K.
Nope. A lot of misinformation is being bandied about this proposal. The few hundred K is well covered under the law. 500K if you are married. This is about taxing the truly wealthy that have raced ahead of everyone else for the past 40 years. I personally am sick of people that crow about making money on investments that don’t pay as much taxes as the a working person while the begrudge an increase in the minimum wage.
“He said that under both current law ( http://www.irs.gov/taxtopics/tc701 ) and the Biden tax plan, a taxpayer selling their primary residence can generally exclude $250,000 (or $500,000 for a married couple) of that sale from their income when filing taxes. “
If that’s the case then how much money are they claiming to raise with this tax. Biden just asked for another 1+ trillion (don’t recall exact number) for family spending so unless he’s adding 1 trillion to the debt he needs to get 1 trillion in taxes. The rich won’t have 1 trillion worth under this proposal because most will just move their stock trading offshore to hedge funds which don’t get taxed.
So either this tax raises next to no money and we add 1 trillion to the debt or it’s going to sneaky raise a lot more than people think on lesser amounts that maybe not at the top rate but are very close to it.
Moving your trading offshore does not reduce your tax dependency other than the taxes paid to the foreign entity.
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?
DISTORTED PICTURE , those 5 trillion belong to merely 5 % of the global population….
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.
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.
The Rich ? Never enough ! The more they have, the more they want, even if they can never spend what they have in their lifetime ! That being said, in the present context, ‘money’ should be no problem, printing and ‘mining’ is en vogue, so what s all that tax nonsense about anyway ? Live and let live,
Print or mine,
Everything gonna be fine.
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!
YOu and everyone who replied to your post in favor are idiots. YOu don’t understand how things work. Ask yourself a question: Have you ever gotten a job from a poor person? But more importantly, what you don’t understand is the year you sell the stock you’ve held for 30 years or the house ALL the gains get added into that single year, so YOU BECOME THE RICH PERSON, but only the one year you sell. And even more important than that, the rich have the capital to invest. When taxed they simply move that capital away from taxes. For every dollar of additional tax the gov’t gets, America loses $3 or $4 in capital! Duh!!! Now, the solution that other stupid gov’ts have done is to restrict the flight of capital! It simply increases the flight! The tighter the gov’t squeezes the more effort the rich put into moving their money! And guess what, the rich are smarter and way harder working than the gov’t! So.. get out of LA LA land and think carefully about what millionaires will do. If you have half a brain you’ll realize it will hurt America.
So genius, how do we pay to fix our infrastructure, keep up with what China is doing in space, fund SS/Medicare, fix healthcare, etc., if we don’t collect revenue (via taxes) from SOMEBODY?
Everytime these subjects come up the answer is always “empty pockets, can’t afford any of that”.
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.
The top 10% own between 70 to 80 percent of the stock market. The bottom 50% do not even own stocks.
A stock market crash would hurt the middle class but in honesty the median 401k for boomers is only 64k. It is less for other ages. The median family income is 68k. so 401k balances are less than 1 year of income.
so a middle class family could lose 30k in a 50% market crash. the top 5% or the people making 350k a year probably have a median 401k balance of 1 to 5 million. Tgey are the ones who take a 50k to over a million loss in a stock market crash.
I guess what i am saying is that about 60% did not benefit from this stock market rally and thus will not be hurt either.
You take the home out of the net worth calcitonin US citizens and you will be surprised at what is left. Not much
I agree with your numbers on stocks.
But those same middle class people own homes / pay rent someplace. Most pension funds DO own lots of stocks in an effort to goose returns. If the pensions run short, the taxpayers make up the difference which means middle and lower middle class people paying the gold/platinum pensions of teachers/firefighters/police and countless other gov’t workers.
Check out this site. Chose the networth and percentile of income dropdowns. net worth has been flat for 90% of families. You take a families house equity out of the networth equation it does not look good. Specially for the lower 80%.
Also choose Finaical Assets instead of Networth. The bottom 50% have less than 22k in financial assets and the 50% to 75% only have $66K in financial assets.
Government intake on the higher cap gain taxes will not see very much from the bottom 75% of families.
https://www.federalreserve.gov/econres/scf/dataviz/scf/chart/#series:Net_Worth;demographic:inccat;population:1,2,3,4,5,6;units:median
Your statement is true on the pension. Only 12% of private workers have a pension. So the fallacy of a stock market crash hurting private pension is not very important. 88% of Government employees have pensions. But like you said, most of those pension will be fine because they will raise taxes or get a bailout. I have watching pension payments as a percentage of the city and municipal yearly budgets. It has been rising year after year for 20 years. Some city and county pension obligations are up to 40% of the yearly budget. 20 years ago it was in the 25% range. It will be interesting when 50% of their budget is pensions.
Actually you’re wrong about the stock market. With massive money printing it will go up and up, but never as fast as inflation. So it’s Monopoly money… people think they’re rich but if they try to sell and then pay over 50% in tax, then live off what is left… then they’ll realize they’ve been screwed!
Fed has been massively printing since 2008 and inflation has remained far below market returns. Stop reading Zerohedge, it’s catastrophe propaganda.
Only 60%?
Republican Dwight Eisenhower was 91% and America’s economy BOOOOOOOMED.
Mish write articles like driving the rich out of NY is a bad thing.
London was a wonderful city to live in and visit…until it enacted laws to attract the rich. Now, I’d never visit it. Because London has become city for the rich.
Brooklyn NY, Manhattan, Boston, London, NY, Chicago, California, San Fran, were fantastic to visit and live in before they became rich enclaves.
Tax the rich out of existence. Let the 90% live a good life.
We need do do what NY is doing, and the opposite of what London is doing – Drive the rich out. The rich are why working folk are
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.
Zardoz… what you don’t realize is… if you invest a modest amount in RE or the market and we have massive inflation from printing money and you need to sell all in one year, all that capital gains adds to your income in that year! So YOU will be taxed at these excessive rates!
Why would you sell a hard asset in an inflationary environment? Much better to use it to generate inflation-increased income and appreciation. Weimar-type hyperinflation has been predicted and failed to materialize every year since 2008.
You are being taxed. You are just too ignorant to understand. Confiscatory tax rates impact investment in the private sector especially inflows from international investors. Capital flight is real. Confiscatory taxation means government confiscates private sector profits instead of profits flowing into new investment. No free lunch. You seem to think that government can confiscate income and wealth from others as a free good without consequences.
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
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.
What tax free heaven do they go to?
For a long time Hong Kong was the best tax jurisdiction on earth……now it might be Singapore, for people with real money. Their top marginal rate is 22% and they don’t tax capital gains at all.
Unfortunately, it is very, very expensive to buy property there.
The British Virgin Islands isn’t bad.
“Individuals in the BVI pay no income tax, land or housing taxes. There is no capital gains tax, wealth tax, inheritance or gift taxes, sales tax or VAT. Stamp duty is payable on some transactions and there is a payroll tax of between 10% and14%, split between employer and employee.”
USVI has some of the same US tax benefits as PR, but since the last hurricanes, PR really ratcheted up the benefits for people willing to own a business there.
To the point, there are many places left abroad where wealthy US ex-citizens can live and pay far less tax than they do if they live here…and a few US territories where they can pay less than in any state and still keep their US passport.
Since mom and pop businesses like mine are not “portable” or compatible with a cyber nomad lifestyle, it becomes more of a question for me of what to do after one retires from the day job, rather than a mid-career decision, but these days that’s changing quickly.
If you are self-employed and able to work from anywhere, it makes good sense to me to GTFO of the clutches of the IRS.
For me personally, I expect to always make substantial income in Texas that would be US taxable no matter where I live or even if I were a foreign citizen, , even after I no longer work the day job, so there is no great advantage to moving……but I sure understand why other people do it.
“Their top marginal rate is 22% and they don’t tax capital gains at all.
Unfortunately, it is very, very expensive to buy property there.”
So, effectively, there is a hefty income / capital gains “tax” after all?! LOL.
No, because even if it costs 2 million to buy a modest house in Singapore, it’s your house, and you can presumably recoup the money when you sell it. For people with lots of assets, that’s just a place they will park some of their net worth until such time as it makes sense to do something else with it.
LOL. Yeah, of course, everybody has 2 million dollars to buy a house! Most don’t even qualify to get a loan for half a million dollars, let alone two.
The very first thing I said was that Singapore is a good tax haven for people with real money. Maybe I should have been more specific. I wasn’t talking about someone making the median income in the US when I said that.
Many go to Puerto Rico. If you reside there you aren’t subject to federal tax. All you have to do is invest in a local business.
Others go to Central America or the Philippines etc.