President Biden’s tax proposal has made an impression.
The markets tanked on leaks on Thursday that the capital gains rate could go up, a policy move Axios described as “eye-popping.” Politico previewed the debate over the proposal earlier this week as a question of “class warfare.”
But might all this hubbub be somewhat misplaced?
Biden is reportedly proposing to increase the top marginal income tax rate to 39.6 percent. The President also wants to see the tax rate for long-term capital gains go up to 43.4 percent for those making a million dollars or more each year.
The Wall Street Journal’s editorial page thundered that “Bernie Sanders was right when he predicted that Joe Biden would be the most left-wing President since FDR. Moderate Joe was always a mirage.” And Anthony Scaramucci, the investment banker and, briefly, Trump White House spokesman, told the FT that the capital gains hike “would have deleterious effects on job creation and wage growth for middle-class workers.”
It’s true that the tax proposals as currently reported are aimed at collecting revenue from the country’s wealthiest in order to finance programs aimed at helping those less well-off; national paid-leave, universal pre-K, and other social programs.
But in the context of the past few decades, and even the past few years, Biden’s proposal is hardly eyebrow raising.
Take the proposed marginal income tax hike. The highest income tax bracket currently has a 37 percent rate; Biden would raise that to 39.6 percent.
Last time taxes were that high was … 2017, before the passage of the Trump tax cuts. The number pales in comparison to the top marginal rate of, say, 1954, when it stood at 91 percent before deductions.
The proposed capital gains hike goes further, but it’s nothing that the country hasn’t seen before.
The current top long-term capital gains rate is 20 percent. Biden would reportedly hike it to a combined total of 43.4 percent — that’s a top capital gains tax of 39.6 percent for those making one million or more a year plus a proposal that would add a 3.8 percent investment tax on top of the capital gains rate. White House officials have emphasized that the increases would affect a small portion of taxpayers.
This proposal, which @JoeBiden campaigned on extensively, changes the tax rate for less than 1% of Americans (in fact, less than 1/2 of 1% of Americans). https://t.co/inqzY8qvpe
— Ronald Klain (@WHCOS) April 23, 2021
A Congressional Research Service report found that the last time the maximum capital gains tax rate was in that range was in the mid-1970s.
The proposal — not even formalized yet — would be a first offer to Congress, as it currently stands.
Republicans have used the need to finance infrastructure spending as a way to effectively take their support for the package off the table. GOP senators committed themselves on Thursday to neither increasing the deficit nor raising taxes to pay for the bill. That’s all but guaranteed their opposition, particularly given their commitment to “preserving” the Trump tax cuts.
