Corporate Tax Hike Push Followed by Wealthy Capital Gains Tax Expansion Preparation
$1 Trillion Human Infrastructure Investment Plan for Resource Mobilization
New York Stock Market Reacts Sensitively... Closes Lower
[Asia Economy New York=Correspondent Baek Jong-min] The Biden administration in the United States has decided to significantly increase taxation on capital gains earned by the wealthy through stock and bond trading. Following the corporate tax hike for infrastructure investment, the Biden administration’s move to expand capital gains tax is expected to intensify the debate over tax increases within the U.S. If the government’s plan proceeds as intended, it is likely to act as a major selling factor in the stock market.
According to Bloomberg News on the 22nd (local time), the Biden administration plans to raise the capital gains tax rate applied to high-income earners with annual incomes exceeding $1 million to 39.6%. Including the progressive tax, the capital gains tax rate could soar to 43.4%. The current top capital gains tax rate is 20%, and including the progressive tax, it is 23.8%. The news agency explained that the U.S. government aims to double the capital gains tax for ultra-high-income earners.
◇ Including progressive tax, it could rise to 43.4% = The Biden administration plans to apply this capital gains tax rate starting next year. The White House did not respond to inquiries about the capital gains tax rate increase.
The Biden administration intends to use the increased tax revenue from the capital gains tax hike as funding for the $1 trillion human infrastructure investment plan called the “American Families Plan,” which is scheduled to be announced next week. The American Families Plan is expected to include measures such as expanded childcare subsidies and free tuition for community colleges.
Last month, President Biden requested a corporate tax increase as a funding measure for the $2.3 trillion social infrastructure investment plan called the “American Jobs Plan.”
The capital gains tax rate has been set lower than the income tax rate to encourage investment, which has drawn criticism as a benefit for the wealthy. Bill Gates, the founder of Microsoft, has argued that despite being subject to taxation himself, the capital gains tax rate is excessively low and should be raised.
CNBC predicted that the capital gains tax rate will rise to a level similar to the top individual income tax rate of 37%. Bloomberg News estimated that in states with high state taxes like California, the top rate could reach 56.7%, and in New York City, it could be 52.2%.
A major foreign news outlet predicted that the capital gains tax increase would deal a significant blow to private equity and hedge fund managers who earn large sums through stock and bond trading.
President Biden’s tax increase policies are expected to continue. Increases in estate taxes on unrealized capital gains and payroll taxes on high-income earners are also anticipated. Wealth tax increases demanded by progressive forces cannot be ruled out.
Regarding this, White House Press Secretary Jen Psaki stated, “President Biden’s focus is on ensuring that both corporations and individuals pay their fair share,” suggesting that an approach based on tax justice is also being pursued.
◇ Negative factor for the stock market... Difficulties expected in congressional approval = However, it is difficult for the tax increase plan to pass Congress as President Biden intends. Business Insider forecasted that the Republican Party, which opposes the Biden administration’s large-scale infrastructure investment, will also oppose the capital gains tax rate hike. President Biden has repeatedly indicated that there is room for negotiation regarding the corporate tax rate increase, which is expected to rise to 28%.
Following the announcement of the plan to significantly raise the capital gains tax rate, the New York stock market immediately turned bearish. The S&P 500 index was up 0.1% around 1 p.m. but plunged after the report on the capital gains tax hike, closing down 0.92%.
Seina Sissel, Chief Investment Officer at Spotlight Asset Group, forecasted, “If the capital gains tax rate rises, selling pressure on stocks will increase for the time being, and sales will likely expand further around the end of the year.”
© The Asia Business Daily(www.asiae.co.kr). All rights reserved.
