President Biden’s recent proposal to raise the top capital gains tax rate to its highest level in over a century has sparked intense debate among economists, with some experts warning of negative impacts on the U.S. economy.
According to a report released by the Treasury Department under Secretary Janet Yellen, the president’s proposed fiscal year 2025 budget includes a plan to raise the top marginal rate on long-term capital gains and qualified dividends to 44.6%. If implemented, this would mark the highest level for capital gains tax since its inception in the early 1920s.
E.J. Antoni, an economist and research fellow at The Heritage Foundation, emphasized the crucial role of investment in driving economic growth. He argued that taxing capital gains could deter investment, leading to slower economic growth and diminished standards of living for Americans.
The Treasury Department’s report outlines that the proposed 44.6% rate comprises various measures, including raising the top ordinary capital gains rate from 20% to 37%. The majority of the tax increases would affect individuals with taxable income exceeding $1 million.
Critics of the proposal, such as Mike Palicz, director of federal tax policy at Americans for Tax Reform, expressed concerns about the potential impact on Americans’ savings and investments. Palicz highlighted the proposal’s potential to subject many individuals to tax rates exceeding 50% when combined with state taxes, which could particularly affect small business owners looking to sell their businesses.
Furthermore, Biden’s plan includes a mandatory capital gains tax on transferred assets upon individuals’ death, as well as a 25% tax on unrealized capital gains for individuals with wealth surpassing $100 million.
Сritics question the assumption that individuals will not adjust their behavior in response to higher tax rates. They argue that such measures could have unintended consequences and potentially stifle economic activity.
Biden’s capital gains tax proposal has ignited a contentious debate among economists, highlighting the complex trade-offs involved in tax policy decisions and their potential impact on economic growth and individual behavior.
