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President Joe Biden proposed a 39.6% maximum tax rate on capital gains and dividends for millionaires when he tabled his budget proposal for the 2022 fiscal year to Congress on Friday.
This corresponds to the maximum rate the government set in April as part of the tax hike for the wealthy to fund the American family plan.
Capital gains tax is owed on assets such as stocks, bonds, mutual funds, and homes that have appreciated in value.
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The richest Americans currently pay a top 20% tax rate on these returns if the asset is held for more than a year. (You also pay a Medicare surcharge of 3.8% on investment income, which brings the top rate to a total of 23.8%.)
Biden’s proposal aims to bring this capital gains tax rate closer to that of their labor income.
The White House plan has a top rate of 43.4% when a Medicare surcharge on investment income is factored in. That is slightly higher than Biden’s proposed maximum tax rate of 39.6% on ordinary income.
It would apply to taxpayers whose income exceeds $ 1 million (or $ 500,000 for couples filing separate tax returns).
The Capital Gain Rate would be retroactive to the “Announcement Date” according to the Treasury document. It’s unclear whether this means Friday’s announcement or perhaps Biden’s draft American family plan in April.
This would effectively mean that millionaires selling future valued assets would be subject to the 43.4% rate.
Of course, the plan has yet to be approved by Congress, which is not guaranteed.
Biden also proposed abolishing an existing tax break on death (the “step-up” basis), which allows valued assets to be passed on to heirs tax-free. As a result, investors cannot necessarily avoid capital gains tax by holding to death.
According to the White House, capital gains tax reforms will raise around $ 322 billion in a decade.
Correction: In his budget proposal to Congress for fiscal year 2022, President Biden proposed a maximum capital gains tax rate of 39.6%. In an earlier version, the number was incorrectly specified.