President Joe Biden will propose almost doubling the capital gains tax rate for wealthy individuals to 39.6% to help pay for a raft of social spending that addresses long-standing inequality, according to people familiar with the proposal.
For those earning $1 million or more, the new top rate, coupled with an existing surtax on investment income, means that federal tax rates for wealthy investors could be as high as 43.4%.
The new marginal 39.6% rate would be an increase from the current base rate of 20%, the people said on the condition of anonymity because the plan is not yet public.
A 3.8% tax on investment income that funds Obamacare would be kept in place, pushing the tax rate on returns on financial assets higher than rates on some wage and salary income, they said.
Stocks slid the most in more than a month on the news, with the S&P 500 Index down 0.9% at the close. Ten-year Treasury yields fell to 1.54% from an intraday high of 1.59% before Bloomberg's report.
Aiming to Equalize Tax Rates
The proposal could reverse a long-standing provision of the tax code that taxes returns on investment lower than on labor. Biden campaigned on equalizing the capital gains and income tax rates for wealthy individuals, saying it's unfair that many of them pay lower rates than middle-class workers.
White House Press Secretary Jen Psaki, asked about the capital-gains plan at a press briefing Thursday, said, "we're still finalizing what the pay-fors look like."
Biden is expected to release the proposal next week as part of the tax increases to fund social spending in the forthcoming "American Families Plan."
Bloomberg reported earlier that Biden will propose almost doubling the capital gains tax rate for wealthy individuals to 39.6% — meaning federal tax rates for some investors could be as high as 43.4%. Stocks slid.
More Planned Tax Hikes
Other measures that the administration has discussed in recent weeks include enhancing the estate tax for the wealthy.
Biden has warned that those earning over $400,000 can expect to pay more in taxes. The White House has already rolled out plans for corporate tax hikes, which go to fund the $2.25 trillion infrastructure-focused "American Jobs Plan."
Republicans have insisted on retaining the 2017 tax cuts implemented by former President Donald Trump, and argued that the current capital-gains framework encourages saving and promotes future economic growth.