President Joe Biden‘s 2025 budget proposal includes an unprecedented approach to capital gain taxes, suggesting a top marginal rate of 44.6 percent on long-term capital gains and qualified dividends. The proposed rate is significantly higher than any rate in over a century, potentially placing the United States on top of the global tax scale. The current capital gains tax rate is added on top of the federal income tax, which is 22 percent.
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According to ATR, this proposed increase would result in a combined federal and state capital gains tax rate exceeding 50% in several states. California residents could see rates as high as 59%, with New Jersey at 53%, Oregon at 54.5%, Minnesota at 54.4% and New York at 53.4%. However, one aspect of the proposal is that capital gains are not adjusted for inflation, and taxpayers might pay taxes on what are simply adjustments for inflation.
The proposed tax rate would also impact long-time business owners. If they decide to sell their business after a certain number of years, they might have to pay back half of their profit in taxes with additional state taxes. This proposal comes from another Biden proposal to increase the federal corporate income tax from 21% to 28%. On an international scale, Biden’s proposed rates are drastically higher than those of major competitors like China, whose capital gains rate is 20%.
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Additionally, the budget proposal states that increasing the capital gains tax would help level the playing field financially between different races in the country, saying this would disproportionately apply to white Americans, as reported by the Daily Mail.
‘Black and Hispanic families are much less likely to hold stock, and of those families who do, their composition of investment portfolios looks much different than White families,’
The proposal also removes a specific tax subsidy for cryptocurrency and other transactions. If approved, crypto and higher stock investors can see their profits significantly decline in a few years. Biden’s proposed tax rate will also impact families when their parents pass away by adding a second Death Tax rate.
“Biden has proposed adding a second Death Tax (separate from and in addition to the existing Death Tax) by taking away stepped-up basis when parents die. This would result in a mandatory capital gains tax at death – a forced realization even,” said John Kartch, an Americans for Tax Reform analyst.