He’s going to crash the economy.
President Biden’s recent proposal to increase the top capital gains tax rate to its highest level in over a century has sparked criticism from experts concerned about its potential impact on the U.S. economy.
Outlined in a report from the Treasury Department, led by Secretary Janet Yellen, the proposal for the fiscal year 2025 budget includes a significant hike in the top marginal rate on long-term capital gains and qualified dividends, reaching 44.6%. If implemented, this would mark the highest level for the capital gains tax rate since its inception in the early 1920s.
Economist E.J. Antoni, a research fellow at The Heritage Foundation, emphasized the crucial role of investment in driving economic growth. He argued that investment fuels productivity gains, facilitates the establishment of factories and machinery, and enables businesses to provide workers with tools to enhance productivity and increase wages. Antoni cautioned that taxing investment, such as capital gains, could lead to reduced investment, slower economic growth, and a significant deceleration in the rise of living standards.
According to the Treasury Department’s report, the 44.6% rate comprises various proposals, including elevating the top ordinary capital gains rate from 20% to 37%, predominantly impacting individuals with taxable income exceeding $1 million. Antoni further warned that increasing capital gains taxes could inadvertently incentivize policymakers to sustain high levels of inflation to ensure larger tax revenues, as the tax on gains from equities also factors in inflation.
Mike Palicz, director of federal tax policy at Americans for Tax Reform, echoed concerns about the proposed tax hike, highlighting its potential impact on Americans’ savings, investments, and the broader economy. He criticized Biden’s plan as jeopardizing individuals’ financial security and hindering small business owners, particularly when selling their businesses. Americans for Tax Reform also cautioned that when combined with high state taxes, the proposed tax rates could result in some individuals paying over 50% on their income.
Additionally, Biden’s proposal includes imposing a mandatory capital gains tax on inherited assets for families and implementing a 25% tax on unrealized capital gains for individuals with wealth surpassing $100 million. Despite projections of generating nearly $800 billion in government revenue, Antoni disputed the notion, arguing that individuals would likely adjust their behavior in response to the higher tax rates, potentially mitigating the expected revenue increase.
