President Biden recently announced that he would increase the capital gains tax rate for wealthier Americans to nearly double the current level. Biden proposes raising the top marginal tax rate to 39.6%. The current top tax rate for capital gains is 20%. This rate would apply to Americans whose annual income is $1 million or more. The capital gains tax would also be added to the 3.8% Obamacare tax, totaling a 43.4% overall tax rate.
On April 28, 2021, President Biden addressed the nation to announce the American Families Plan (AFP), which is designed to make “an investment in our kids, our families, and our economic future.” To help fund this plan, the President wants to increase taxes for wealthy Americans. The capital gains tax increase is projected to affect .4% of taxpayers. According to the Institute on Taxation and Economic Policy, 0.7% of households would face some tax hike, with the wealthiest 1% bearing almost the entire burden of the AFP tax increase.
Some controversy surrounds this plan, including concerns that it will negatively affect the economy during a recession. According to the Biden Administration, since the AFP is an investment in human capital, it is likely to pay for itself. The increase in capital gains tax is a ‘once in a generation” investment with benefits that will continue for decades. The plan also includes other provisions that are popular among American voters.
Passing a capital gains tax increase through Congress will not happen quickly. The proposed increase in the capital gains rate will most likely decrease before it passes into law.
If you have any questions or would like more information on capital gains taxes, contact The Innovative CPA Group’s tax professionals at 203-489-0612 or via our contact form.