Biden's tax-the-rich plans
President Biden in the next few days will unveil eye-popping new tax rates for the wealthiest Americans —a top marginal income tax rate of 39.6% and a capital gains rate of 43.4%.
Why it matters: The proposal, to be announced ahead of Biden's address to Congress next Wednesday, is an opening bid for Hill negotiations.
- "For New Yorkers, the combined state and federal capital gains rate could be as high as 52.22%. For Californians, it could be 56.7%," Bloomberg News reported.
- The Dow closed down more than 300 points after the plans leaked.
Practically and politically, the White House needs buy-in from Congress to pay for social spending in the next phase of his plan to reshape the American economy, the American Families Plan.
Between the lines: Democrats close to the White House believe that the amount of revenue that the IRS can collect on capital gains actually decreases past a certain point, probably in the low 30% range. That means the ultimate capital gains rate could be well below 43.4%
- Officials haven't yet made clear whether the capital gains rate would apply in 2022 — or in 2021, which would allow the IRS to harness some of this year's massive equities earnings.
- Goldman Sachs sent out a research note last evening entitled, “No Surprises in President Biden’s Reported Capital Gains Proposal.": "We expect Congress will pass a scaled back version of this tax increase."
What we're watching: Biden also is likely to raise more revenue from the wealthy by making changes to estate taxes.
- Biden wants to change the so-called "stepped up basis" for accounting purposes, and value assets when they are passed on to an heir, not at their original cost.
- The White House thinks that change could lead more individuals to liquidate assets before they die, allowing the IRS to tax them then instead of encouraging families to keep passing on them for more favorable tax treatment.
Editor's note: This story has been corrected to reflect that Biden wants to value estates at how much they are worth when they change hands and remove the so-called "stepped up basis."