Cap Gains Summary

Biden’s proposal under the American Rescue Plan would raise the nominal capital gains tax rate from the current 20% to 39.6% which would be the highest rate for such a tax in the Organization for Economic Cooperation and Development (OECD), surpassing Denmark’s steep 42.0%.

For New Yorkers, these high rates only continue to grow because NYS already taxes capital gains. So, when NYS Governor Cuomo approved the state’s budget for the fiscal year 2022, he signed off not only on increased personal income tax rates for top earners but effectively raised their capital gains taxes as well. The new rates, effective for the 2021 filing year, max at 10.9% for the highest income bracket (annual income over $25 million).

NYC also taxes capital gains, levying a 3.876% top rate on its elite urbanites.

Let’s Crunch The Numbers

For corporate qualified dividends that get double-taxed on both the entity level and again as a capital gain on shareholders, total capital gains rates could reach as high as 75%, depending on a taxpayer’s state and locality.

Implications

Biden’s ultimate goal is to use the income raised through these tax hikes to fund his infrastructure budget, which includes significant benefits for low-to-mid-income American households. The fiscally conservative fear is that higher rates will discourage investment. Or, investors will hold onto their assets longer to avoid realized gains and paying tax, dubbed the “lock-in-effect.” Both instances could result in frozen economic growth and could prevent any trickle-down benefits for the disenfranchised communities Biden seeks to serve.

Speak with your trusted accountant at 516-541-6549 and visit our website to stay informed on all tax news.

Devin McQuillan
Associate, Creative Solutions

Contact:
516-541-6549 | Email

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