President Biden is reportedly preparing a proposal for a near-doubling of the capital gains tax for wealthier Americans, increasing the rate to 39.6 percent, up from the current top rate of 20 percent, according to a report in Bloomberg News.
The increase, in line with campaign promises, would impose the higher rate on those earning more than $1 million. But when added to a 3.8 percent surcharge on investments put in place by the Affordable Care Act, the top rate could reach 43.4 percent.
Additional capital gains taxes in high-tax states could push investment taxes up further for residents. Biden is expected to include the proposal as part of his American Families Plan to be presented before a joint session of Congress next week.
The plan is expected to propose $1 trillion in investments for child care, paid leave and other tax credits oriented toward families.
White House press secretary Jen Psaki said the plans were not finalized, but that Biden believed investments in infrastructure and child care should be paid for.
“His view is that that can be on the backs of the wealthiest Americans who can afford it, and corporations and businesses who can afford it. And his view, and the view of our economic team, is that that won’t have a negative impact,” she said Thursday.
Markets dropped on the news of Biden’s tax plan Thursday, erasing their minor gains from earlier in the day. The S&P 500 was down 30 points, or 0.7 percent, after being up 6 points, or 0.1 percent, before the report.
Democrats have long sought ways to increase taxes on the wealthiest Americans, who have seen their fortunes expand even as the pandemic took a sledgehammer to the economy.
Unlike the wealth tax proposed by Sen. Elizabeth Warren (D-Mass.), which would take an annual chunk out of the overall wealth stock of high-net individuals, the capital gains tax would only kick in when stocks or other assets are sold.
Critics of Warren’s wealth tax have argued that higher capital gains taxes are easier to administer.
Because high earners often take in significant sums from capital gains, Democrats complained that the lower tax rate on investment income meant the wealthiest pay far less on their earnings than typical wage-earners.
The top income tax rate is currently 37 percent, but was 39.6 percent before the 2017 GOP tax law.
Investor Warren Buffett famously complained that his secretary paid a higher percentage of her earnings on taxes than he did for that reason.
The increases are unrelated to the corporate tax increase from 21 percent to 28 percent that Biden proposed for his $2.3 trillion infrastructure plan.
Republicans on Thursday unveiled a $568 billion counter-offer that would leave corporate taxes in place, and seek to cover the costs through increased user fees, though it did not offer specifics.
Brett Samuels contributed. Updated at 2:49 p.m.