US President Joe Biden has proposed massive tax increases to tackle the Covid-19 pandemic, rebuild the economy and close the wealth gap. Under the new proposals, capital gains tax, the tax on income from stocks, shares and investments, will double from 19% to above 40%. This means that capital gains will be taxed at the same level as wage income for the wealthy.
There will also be a new top rate of tax for people earning over $1 million, alongside a tax on investment income, meaning that federal tax for some individuals could be almost 45%.
The news was met with glee by anti-poverty activists and Democrats but was rejected by Republicans, who claim that the tax on investment will harm economic growth and cause job losses.
Stocks slid after the Biden proposals with the S&P 500 Index down 0.9% and US treasury yields fell from 1.54% from 1.59%.
The wealth created by the new tax will go towards healthcare programs, rebuilding the economy and fighting the pandemic, which has claimed over half a million US lives.
Treasury Secretary Janet Yellen told CNN:
"(Biden) hasn't proposed a wealth tax but he has proposed that corporations and wealthy individuals should pay more in order to meet the needs of the economy, the spending we need to do, and over time I expect that we will be putting forth proposals to get deficits under control."
She added:
"President Biden during the campaign proposed a higher tax rate on corporations, on individuals and on payments, capital gains and dividend payments that are received, and those are alternatives that address -- that are similar in their impact to a wealth tax."
Under the new proposals no one in the United States earning under $400,000 a year will have any sort of tax increase.
Some in Washington believe that Biden may have a tough time getting his tax proposals through the House and the Senate despite the Democrats controlling both houses. It is thought that a group of right-leaning Democrats may very well ask for a compromise to make the tax-increases less extreme.
[h/t: Bloomberg]
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