In his budget for 2025, President Biden proposed increasing the highest marginal tax rate on eligible dividends and long-term capital gains to 44.6%. According to Americans for Tax Reform (ATR), if passed, this rate would be the highest in over a hundred years.
Adding state capital gains taxes to the federal rate might make it more than 50% in certain places. According to ATR, certain states’ percentages might be as high as 59%. For example, New York, Oregon, New Jersey, and Minnesota could have rates between 53.4% and 55.3%.
Opponents of the plan say that certain groups would be hit more than others by capital gains taxes, especially if they aren’t adjusted for inflation. For instance, tax obligations on gains that are primarily or partially due to inflation instead of actual profit may end up being too high for small company owners to handle.
Biden has advocated a rate that is much higher than China’s 20% capital gains tax.
While the tax rate has changed over the years, it was 12.5% when first implemented in 1922.
Further complicating matters is that Biden’s proposal included steps to handle the inheritance tax. The proposal to abolish a stepped-up basis following the transfer of assets upon death might impact financial preparation and estate management, which could lead to an obligatory capital gains tax.
The transfer of an asset to an heir is considered a taxable event in and of itself, and the estate must pay taxes on the profits as if the item were sold.
The budget plan’s centerpiece is tax increases of almost $5 trillion over the next ten years, which have elicited conflicting responses. Opponents point to their possible negative impact on investment and economic development, while proponents say they are essential for funding welfare initiatives and infrastructure improvements.
