President Biden's 2025 budget proposal includes a striking increase in the top capital gains tax rate, potentially reaching 44.6%, the highest in over a century. This proposal has stirred significant concern among taxpayers, particularly as it may lead to a combined federal-state tax rate exceeding 50% in many states. The impact is especially pronounced given that capital gains are not indexed to inflation, effectively taxing gains that aren't real due to inflationary effects.
Furthermore, the proposed capital gains tax hike could disproportionately affect small business owners and families, particularly during inheritance transfers. Biden's plan includes eliminating stepped-up basis upon death, effectively creating a mandatory capital gains tax event upon transfer to heirs.
Critics of the proposal argue that capital gains taxes are already a form of double taxation, particularly when considering the existing federal corporate income tax rate. Additionally, comparisons with other countries, such as China, highlight the potential competitiveness concerns, with the proposed US rate far surpassing that of China.
While the Biden administration frames these measures as necessary for funding various government programs and addressing wealth inequality, opponents worry about the potential negative consequences for investment, entrepreneurship, and economic growth. Ultimately, the proposed capital gains tax hike represents a significant policy shift that could have wide-ranging implications for taxpayers and the economy as a whole.
