President Joe Biden is expected to put forth a proposal that will raise the federal capital gains tax from 20% to 39.6%, but if you factor in the Medicare surtax, the richest taxpayers will end up paying 43.4%. According to Brian Deese, the director of the National Economic Council and the President’s top economic advisor, the plan would raise the tax on those who make more than $1 million in annual income which is 0.3% of American households.
If this proposal goes through and this new capital gains tax is implemented, it would bring the federal rate to new heights not seen since the 1920s.
Currently, long-term capital investors get taxed with respect to their wages, but this new law would change that and tax capital gains as everyday income. President Biden is planning on using the money raised from this law to fund his American Families Plan, a plan that will devote hundreds of billions of dollars to a wide variety of issues from national child care to tuition-free community college.
However, many parts of the plan are still unclear with tax experts saying it may exempt certain taxpayers like particular business owners from the levy.
Not Every Investor
According to research conducted by investment banking company UBS, about 75% of American stock investors will not be subject to the increase due to the fact that those accounts aren’t subject to a tax. Paul Auslander, director of financial planning at ProVise Management Group, said “If the average American own stock, stock mutual funds or exchange-traded funds in a qualified [retirement] plan, it doesn’t have any impact.”
This matches Joe Biden’s campaign plan to tax capital gains like ordinary income for $1M and up (his proposed top rate of 39.6% + existing 3.8% net investment income tax = 43.4%). https://t.co/B5bx4LvjIh
— Sahil Kapur (@sahilkapur) April 23, 2021
The remaining 25% are investors who hold stock in brokerage accounts that will be subject to this new capital tax, but remember – only those that exceed $1 million a year.
In response to this news, cryptocurrencies across the board saw sharp losses with Bitcoin alone dipping down to $47,555, but it has since recovered somewhat with it currently worth around $54,000 at the time of this writing. Social media blew up with a lot of people posting on how this new plan will hurt cryptocurrencies with some complaining about their losses; although analysts have said that this is only temporary.
Rudd Feltkamp who is the CEO of the cryptocurrency trading bot Cryptohopper said that he doesn’t think that the president’s tax plan will have a big impact stating “Bitcoin has only gone up for a long time, it is only natural to see a consolidation”.
Despite the bemoaning seen on social media, analysts and traders remain hopeful. Don Guo, CEO of Broctagon Fintech Group, said that investors will see this as an opportunity to buy the dip at a lower price. People will remain bullish although they do caution that it might take a while before the price of Bitcoin and another crypto will start going up again.
This proposal comes from President Biden’s campaign promise to make the wealthiest households in the country contribute more as a percentage according to their income rather than supplemental. It’s worth noting that under this plan, 13 states would see a capital gains tax rate above 50%.
How do you feel about Biden’s tax plan?