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Experts Warn Biden’s Capital Gains Tax Could Cripple the Economy

Experts Warn Biden’s Capital Gains Tax Could Cripple the Economy
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Experts Warn Biden’s Capital Gains Tax Could Cripple the Economy

Source: Pinterest

Recently, President Joe Biden, in his latest proposed fiscal budget for 2025, is making plans to increase the capital gains tax to the highest level in more than a century. 

However, this idea is being criticized by experts as they suggest such action could cripple the United States economy. Biden intends to raise the top long-term capital gains tax rate from 23.8% to 44.6%.

President’s Proposed Fiscal Budget To Increase the Top Marginal Rate on Long-Term Capital Gains

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The president’s proposed fiscal year 2025 budget would raise the top marginal tax on long-term capital gains and qualifying dividends to 44.6%, according to a report released by the Treasury Department under Secretary Janet Yellen’s leadership. 

The rate would reach its highest point since it was initially implemented in the early 1920s with a capital gains tax increase of that size.

Effect of the Proposed Plan on High Tax Areas

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Reports suggest that if the proposed plan works, about 11 states will be most affected. This includes high-tax areas like California, Hawaii, and New York. 

This proposal could enable these high-tax states to experience about 50% of total capital gains and also change how the people who will be affected save and invest. 


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Creation of Financial Implications

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In light of the expiration of a significant tax cut during the Trump administration, Ted Jenkin, CEO of oXYGen Financial, has provided information regarding a potential problem with the tax increase.

Jenkin said that this kind of situation could lead to some Americans selling off their assets to evade high taxes in the future. In other words, this scenario could have financial implications as people would want to make decisions based on tax changes. 

Upcoming Election as a Deciding Factor

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Jenkin notes that the outcome of the next presidential election may affect future tax bills, particularly about long-term capital gains. 

He suggested that to avoid paying double taxes by 2026, Americans would wish to sell off their highly valued stock holdings today. This clarifies how to anticipate and prepare for any tax adjustments depending on upcoming political developments.

Potential Repetition of History

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History might just repeat itself because, in 1929, there was a market crash when many people sold off their assets due to tax changes. This automatically led to market declines. 

This explains how tax increase has the potential of disrupting the markets and raising worries among investors about potential negative consequences. 

Impacts on the American Stock Market

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Reports have it that more Americans than ever before are making stock market investments. The percentage of US households with stocks raised to 58% in 2022 compared to 53% in 2019. 

Statistics from the Wall Street Journal figure show a sizable section of the population may be impacted by changes to capital gains taxation. 


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Important Stock Market Indices Have Risen by More Than 100%

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Major stock market indices such as Dow Jones and S&P 500, have risen by more than 100% since the beginning of the COVID-19 pandemic. 

Still, a great deal of these gains have mainly benefited the already wealthy and well-off. This suggested that the wealthy were becoming richer.

Lower Investors To Pay Zero in Capital Gains Tax

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The new proposed tax rate will not affect every business owner. Some investors who don’t make much will share the benefits of paying zero tax. 

The 44.6 tax rate will have less effect on singles making $47,025 or less, they could pay zero in capital gains tax next year and it goes up from there. 

Potential Negative Effects on Business Owners

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Ted Jenkin suggests that the new tax rules could negatively affect business owners, as they might be forced to sell sooner than expected. 

This will in turn affect people’s jobs. It will also have an adverse on the economic landscape as this could suppress new business growth. 

ALSO READ: Biden Set to Release 1 Million Barrels of Gasoline Amid Price Hike

Tax Obligation for Inherited Assets

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Joe Biden’s new tax rule now entails tax obligations for inherited assets. This is a significant change to an existing tax law, which usually exempts inherited assets from income taxes. 

However, it comes with a relieving condition that estates that are worth $5 million or less could be excluded from this taxation. 

Challenges to the Proposed Tax Law

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The newly proposed tax law by the Biden administration still needs to scale through some hurdles before it could become effective. Firstly, it needs to survive difficult challenges to the 2025 budget. 

Also, there is an upcoming presidential election that poses a threat to Biden’s current administration. It’s still a tight race between Biden and his major opponent, Trump. 

Trump Has Yet To Put Forward Any Reforms to the Capital Gains Tax System

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Even with these impending changes, Trump has not substantially reformed the capital gains tax system.

This distinction highlights the two top candidates’ differing fiscal plans, which will shape the economic debate in the next election as well as the strategies of investors and financial planners.


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