Biden’s Proposed Capital Gains Tax Rate Would be Highest for Many in a Century

The Biden administration is proposing to tax long-term capital gains at ordinary income rates for high earners, which will bring the top federal rate to highs not seen since the 1920s. Taxing capital gains at a lower tax rate than ordinary income is partly a feature of savings-consumption neutral taxation.

The highest capital gains tax rates in history date to the 1920s, when capital gains income was subject to a maximum rate of 77 percent. Those high rates were reduced starting in 1922 due to concerns about decreasing capital gains tax revenues, and going forward, long-term capital gains have mostly been taxed at lower rates than ordinary income.

Biden’s proposal would reverse that—raising the top rate on capital gains up to 43.4 percent when including the 3.8 percent Net Investment Income Tax (NIIT). While not as high as the rates seen in the 1910s and 1920s, a 43.4 percent top rate would be the highest in modern times. (Of note, some taxpayers experienced a top rate of 49.875 percent in 1978 due to other tax interactions.) …

Click here to read the full article from the Tax Foundation.

Comments

  1. One of the main reasons for a lower tax rate on capital gains is to get people to invest. without investments businesses will fail

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