President Biden intends to raise capital gains taxes for those earning more than $1 million a year his top economic adviser confirmed Monday, arguing that the move would affect only a tiny share of American households.
“One element of this reform would be to change how we tax capital gains,” Brian Deese, the director of the National Economic Council, said at a press briefing Monday, speaking about forthcoming tax proposals. “This change will affect taxpayers making more than $1 million a year.”
Biden is set on Wednesday to unveil his “American Families Plan,” featuring major new social-spending measures that would be funded in part by higher taxes on the wealthy. Deese briefed on just one element of the plan Monday after criticism from Republicans about the White House’s reported push to almost double the capital gains tax for top earners.
Deese didn’t specify whether the $1 million income threshold is for individuals or for households. But he described the increase as affecting “three-tenths of a percent of taxpayers,” or about 500,000 US households.
“The reforms that the president will lay out are focused on this top sliver of people, and treating capital gains the same as wages for that top three-tenths of a percent,” Deese said. “And we believe that it’s not only fair, but it would also help to reduce the kinds of tax avoidance that significantly undermines trust and fairness in the tax code itself.”
Bloomberg reported last week that the White House is planning to almost double the capital gains tax rate for wealthy individuals to 39.6 percent, compared with the 20 percent rate today. Along with a surtax to help pay for Obamacare, it means that federal tax rates for wealthy investors could be as high as 43.4 percent.
Republicans have criticized the idea as economically damaging, saying it would lead to weaker investment.
Goldman Sachs, drawing on Federal Reserve data, estimates that the wealthiest households now hold $1 trillion to $1.5 trillion in unrealized capital gains on equities. That’s roughly 3 percent of US stock market capitalization.
“The trend of net equity selling and falling stock prices around capital gains rate changes has usually been short-lived and reversed during subsequent quarters,” Goldman strategists led by David Kostin wrote in a note Friday. In the three months prior to the last hike in the capital gains rate hike, in 2013, “the wealthiest households sold 1 percent of their starting equity assets, which would equate to around $120 billion of selling in current terms,” they wrote.
Goldman analysts are penciling in congressional passage of a capital gains rate of “around 28 percent” for the wealthy, anticipating Biden’s proposal will be substantially altered.
Republicans are likely to oppose the tax increases en masse, but the White House is also risking a struggle with Democratic lawmakers. Some of those from New York, New Jersey, and other high-tax states in particular were already mobilizing to demand relief for their constituencies even before Biden’s official announcements. With the 50-50 Senate and a narrow margin in the House, months-long negotiations loom.
Biden is also likely to propose increases on the number of Americans subjected to the estate tax. He campaigned on closing popular tax breaks including a provision that lets appreciated assets go untaxed when they are inherited, along with eliminating the carried-interest tax break, which lets private equity managers cut their Internal Revenue Service bills.
Without the GOP, Biden will need to craft a deal with his own party’s lawmakers. Some Democratic moderates, such as West Virginia Senator Joe Manchin, have said they want to limit the size of the tax increases.
A bigger constituency Biden will need to woo is a group of House lawmakers largely representing districts in New York, New Jersey, and California, who demand an expansion of a tax deduction that Trump limited in 2017. More than 20 Democrats have said they won’t vote for Biden’s plan unless the $10,000 cap on state and local tax, or SALT, deductions is addressed.
Deese on Monday highlighted that revenue would “help invest directly in our kids and our families and our future economic competitiveness and put us in a position where we can drive greater economic growth.”