- What are the specifics of Biden’s proposed capital gains tax?
- How would this new levy affect high-tax states like New York?
- Will a capital gains tax stunt the northeast’s growth post-COVID-19?
What Are The New Proposed Tax Rates?
Biden’s new American Families Plan (AFP) includes a proposed tax hike on capital gains – doubling the current tax rate on sold assets.
Under the current law, capital gains are taxed at 0%, 15%, and 20%, with the latter rate being reserved for the wealthiest bracket of taxpayers. However, all investments are subject to a 3.8% surtax to fund the Affordable Care Act’s Medicare expansion, making the current total maximum tax burden on capital gains 23.8%.
Biden’s proposal would subject those earning over $1 million annually to a new maximum rate of 30.6% plus the 3.8% surtax, totaling 34.4%. If passed, this would become the highest tax rate on investment incomes in the US since 1920.
Brian Deese, White House Economic Advisor, defended the President’s tax hike, saying “that most taxpayers with income under $1 million get most of their income from wages, while most taxpayers with income above this threshold get theirs from investments.”
How Will This Affect New Yorkers?
Of the many issues with Biden’s proposal, one concern stands at the forefront of Congressional debate: the new tax code changes under the AFP do not yet include any deductions for State and Local Tax (SALT).
For high-tax states like New York and California, the combined state and federal tax rates can mean serious tax hikes. New Yorkers can be looking at a max combined rate as high as 52.2% and Californians 56.7%.
So far, over 20 Democrats in the House have said they will not vote for Biden’s plan without discussing SALT deductions. Lawmakers agree that such a severe tax hike may cause residents to flee to low-tax states. For the Northeast, that can mean a stunted economic recovery post-COVID-19, says chief economist, Erin Sykes: “The negotiation of SALT doesn’t really help anybody all that much because the high net worth individuals will be paying more taxes through their businesses.”
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