Biden to propose nearly doubling capital gains tax for the rich

President Joe Biden will propose almost doubling the capital gains tax rate for wealthy individuals to 39.6%, which, coupled with an existing surtax on investment income, means that federal tax rates for investors could be as high as 43.4%, according to people familiar with the proposal.

The plan would boost the capital gains rate to 39.6% for those earning $1 million or more, an increase from the current base rate of 20%, the people said on the condition of anonymity because the plan is not yet public. A 3.8% tax on investment income that funds Obamacare would be kept in place, pushing the tax rate on returns on financial assets higher than the top rate on wage and salary income, they said.

Stocks slid on news about the plan, with the S&P 500 Index down 0.7% as of 1:43 p.m. after climbing 0.2% earlier. The Nasdaq Composite fell 0.6% after rising as much as 0.5%. Ten-year Treasury yields erased gains.

The proposal could reverse a long-standing provision of the tax code that taxes returns on investment lower than on labor. Biden campaigned on equalizing the capital gains and income tax rates for wealthy individuals, saying it’s unfair that many of them pay lower rates than middle-class workers.

The White House didn’t immediately respond to a request for comment, and the Treasury Department declined to comment. Biden is expected to release the proposal next week as part of the tax increases to fund social spending in the forthcoming “American Families Plan.”

That proposal, expected at around $1 trillion, will come as Congress debates how to proceed on Biden’s separate $2.25 trillion infrastructure-focused package known as the American Jobs Plan, which would be funded by tax increases on corporations. It also follows the $1.9 trillion coronavirus-relief bill passed in March.

The families plan is set to include a wave of new spending on children and education, including a temporary extension of an expanded child tax credit that would give parents up to $300 a month for young children or $250 for those six and older.

The capital gains increase would raise $370 billion over a decade, according to an estimate from the Urban-Brookings Tax Policy Center based on Biden’s campaign platform.

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