In late April, President Biden pitched his capital gains tax proposal designed to fund the second part of the Build Back Better initiative: the American Families Plan. The plan is estimated to cost around $1.8 trillion, and the capital gains tax proposal is projected to generate $113 billion over 10 years. The funds will be collected only from the top .3% of households\u2014those making more than $1 million annually. Desse, the director of the National Economic Council, stated that, \u201cfor the other 997 out of 1,000 households in the country [those that are not included in the top .3%]… this is not a change that will be relevant. He elaborated that this is due to the fact that most Americans making less than $1 million per year generate ~70% of their income directly from wages whereas Americans who make more than $1 million per year collect only ~30% of their income from wages.<\/p>\n\n\n\n
Biden\u2019s capital gains plan affects more than stocks, including bonds and cryptocurrency. Currently the IRS categorizes and taxes short-term capital gains like regular income, and the top tax bracket pays a rate of 37%. Separately from the plan, Biden is proposing a tax hike which will raise this number to 39.6%. However, under his plan, long-term capital gains are greatly affected. As of now, long-term capital gains are not taxed as traditional income and the tax bracket is different with a 20% tax rate on gains over $445,850. The long-term capital gains tax rates and income brackets for 2020 is shown below.<\/p>\n\n\n\n Under Biden\u2019s tax plan, only the bottom row would be affected (gains over $1 million), but the increase would tax long-term capital gains similarly to how they tax short-term capital gains and regular income, raising the rate to 39.6%. Additionally, the IRS charges 3.8% net investment income tax which funds Obamacare, which will raise the rate further to 43.4%. This jump is massive and where Biden will collect much of the projected $113 billion. <\/p>\n\n\n\n However, despite these seemingly large changes, investment in U.S businesses is not<\/em> at risk. Generally, 75% of U.S stock investors will not be subject to any increase because the plan only affects specific types of accounts. The 75% stated above invest into IRAs and 401(k)s, types of retirement plans, both of which are either tax-free or tax-deferred. When money is taken out from these accounts that capital is taxed at the ordinary tax rate, however, these portfolios can sell investments without paying any capital gains tax. <\/p>\n\n\n\n According to a study from the UPenn Wharton Business School, up to 90% of the increase will be avoided by wealthy Americans. This tax avoidance, which as of now can be done legally, will reduce the potential value the plan could generate by $900 billion. The money is being generated by stockholders selling long-term investments, which they have no obligation to do at any point in time. Thus, they can essentially choose when to sell and when to pay the tax on that sale\u2014if ever. With current laws, there is no tax on inherited income and if assets are held until death, they are wiped. Despite these flaws, Biden is adamant to \u201cget rid of the loopholes that allow Americans who make more than $1 million a year pay a lower rate on their capital gains than working Americans pay on their work.\u201d <\/p>\n\n\n\n By: Alyssa Fan<\/sup><\/p>\n","protected":false},"excerpt":{"rendered":" In late April, President Biden pitched his capital gains tax proposal designed to fund the second part of the Build Back Better initiative: the American Families Plan. The plan is estimated to…<\/p>\n","protected":false},"author":4204,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[331117],"tags":[304801,331114],"ppma_author":[331123],"class_list":["post-329","post","type-post","status-publish","format-standard","hentry","category-the-bottom-line","tag-alyssa-fan","tag-informational-articles"],"authors":[{"term_id":331123,"user_id":4204,"is_guest":0,"slug":"c22nm1-2","display_name":"EBITDAlton Team","avatar_url":"https:\/\/blogs.dalton.org\/thebottomline\/wp-content\/wphb-cache\/gravatar\/254\/25498de874dab1cc6a0eafb4e96927c1x96.jpg","1":"","2":"","3":"","4":"","5":"","6":"","7":""}],"_links":{"self":[{"href":"https:\/\/blogs.dalton.org\/thebottomline\/wp-json\/wp\/v2\/posts\/329","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/blogs.dalton.org\/thebottomline\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/blogs.dalton.org\/thebottomline\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/blogs.dalton.org\/thebottomline\/wp-json\/wp\/v2\/users\/4204"}],"replies":[{"embeddable":true,"href":"https:\/\/blogs.dalton.org\/thebottomline\/wp-json\/wp\/v2\/comments?post=329"}],"version-history":[{"count":0,"href":"https:\/\/blogs.dalton.org\/thebottomline\/wp-json\/wp\/v2\/posts\/329\/revisions"}],"wp:attachment":[{"href":"https:\/\/blogs.dalton.org\/thebottomline\/wp-json\/wp\/v2\/media?parent=329"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/blogs.dalton.org\/thebottomline\/wp-json\/wp\/v2\/categories?post=329"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/blogs.dalton.org\/thebottomline\/wp-json\/wp\/v2\/tags?post=329"},{"taxonomy":"author","embeddable":true,"href":"https:\/\/blogs.dalton.org\/thebottomline\/wp-json\/wp\/v2\/ppma_author?post=329"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}Rate<\/td> Single<\/td> Married Filing Jointly<\/td> Married Filing Separately<\/td> Head of Household<\/td><\/tr> 0%<\/td> $0-$40,000<\/td> $0-$80,000<\/td> $0-$40,000<\/td> $0-$53,600<\/td><\/tr> 15%<\/td> $40,001- $441,450<\/td> $80,001- $496,600<\/td> $40,001- $248,300<\/td> $53,601- $469,050<\/td><\/tr> 20%<\/td> $441,451+<\/td> $496,601+<\/td> $248,300+<\/td> $469,050+<\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n