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Illustration: Aïda Amer/Axios

President Biden wants to nearly double the capital gains tax paid by wealthy Americans, as first reported yesterday by Bloomberg and confirmed by Axios.

Counterintuitive: Biden's plan is better for private fund managers (hedge, PE, VC, etc.) than what he proposed during the campaign.

By the numbers: Biden wants a 39.6% top rate on long-term cap gains, up from the current 20% rate, for those earning at least $1 million of annual investment income. He's also expected to maintain an ACA-related investment tax, bringing the federal toll to 43.4%.

  • Key here is that Biden wants a capital gains rate at all, maintaining it as separate from ordinary income.
  • During the campaign he pledged to eliminate differential treatment of cap gains for high earners, instead categorizing such monies as ordinary income. Among other things, it was a backdoor way to close the carried interest loophole, since it's predicated on a lower tax rate for capital gains.

Wait, how is this better? The White House doesn't really expect to get that 39.6% rate for cap gains, just like it didn't really expect to get a 28% corporate tax rate. It's a starting point for negotiations, with Axios' Hans Nichols reporting that the Democratic sweet spot somewhere closer to 30%.

  • Yes, 30% is still way higher than the current cap gains rate.
  • But it's significantly lower than the 39.6% that Biden also wants for top earners on their ordinary income, and which he's more likely to get because it's just a small bump that returns us to pre-2018 levels.

Profit-taking. No word yet on if a cap gains increase would be retroactive to 2021 taxes, or go into effect next year (as the corporate tax proposal would do). If it's the latter, and this becomes law, expect a lot of Q4 asset sales.

Caveat: All of this is part of Biden's second infrastructure proposal, but there isn't even yet legislative language on his first one (let alone a scheduled vote).

  • Plus, still no word on if Democrats will insist on some sort of SALT suspension, so as to lighten the tax load on wealthy voters in states like California, New York, New Jersey and Massachusetts.

The bottom line: Everyone knew Biden planned to raise taxes on the rich. They didn't know that he might let carried interest continue being taxed at a lower rate than ordinary income.

Go deeper

Apr 23, 2021 - Politics & Policy

Biden's tax-the-rich plans to be detailed in days

(Photo: Al Drago-Pool/Getty Images)

In the next few days, the White House will unveil long-awaited details for most of the tax-the-rich proposals President Biden has been promising since last year's campaign — laying the groundwork ahead of an April 28 speech to lawmakers timed around his first 100 days in office.

What we're hearing: Think of Biden's plans to increase the top marginal rate to 39.6% and the capital gains rate to 43.4% for the wealthiest Americans as opening bids.

Apr 23, 2021 - Politics & Policy

Biden's tax-the-rich plans

Photo: Doug Mills/Pool/Getty Images

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.

Dan Primack, author of Pro Rata
Apr 22, 2021 - Economy & Business

Stocks fall on reports that Biden wants to hike taxes on capital gains

Data: FactSet; Chart: Axios Visuals

Stocks fell Thursday following media reports that President Biden wants to nearly double the capital gains tax paid by wealthy Americans.

Inside the numbers: Biden reportedly is considering a proposal of a 39.6% top rate on long-term capital gains, up from the current 20% rate. He also is expected to maintain an ACA-related investment tax, bringing the total federal rate to as high as 43.4%, as first reported by Bloomberg and confirmed by Axios.

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