Biden Prepares to Raise Taxes to 56.7% for Richest Americans
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- Joe Biden proposes rate hikes for wealthy Americans to fund his new plan
- Stocks, cryptocurrencies decline in response to the proposal
US President Joe Biden aims to increase taxes on wealthy Americans as soon as next week. The drastic move is necessary so that the proceedings could be used to pay for the American Families Plan, which is part of the infrastructure plan worth $2.25tn. The changes will reverse some of Donald Trump’s 2017 tax cuts. The capital gains tax for Americans making more than $1mn could almost double to 39.6%. Coupled with the existing surtax on investment income, the rate for wealthy individuals could reach 43.4%.
The new rate of 39.6% would be an increase from the current rate of 20% with another 3.8% added tax on investment income. The plan, which is not yet made public, includes other measures that target wealthy estate owners and business owners. President Biden has said that those earning more than $400,000 will most likely pay higher taxes, too.
People earning more than $1mn a year and living in high-tax states could end up paying above 50%. New Yorkers face taxes up to 52.22% and Californians could pay as high as 56.7% in taxes.
There is already looming disagreement among Republicans who oppose the proposed rate hikes and insist on keeping the 2017 tax cuts introduced by the former administration of Donald Trump. Republicans argue that Biden’s tax increase will make the US less competitive as the current capital-gains framework promotes corporate growth in the US which results in better standings globally. According to some Republicans, higher taxes will discourage investment, cut growth, cause unemployment and prompt US companies to seek tax havens outside the US.
New Tax Proposal Affects the Market
Investors did not receive the news well yesterday. The major US stock indexes all slid the most in more than one month. The proposed higher rates target private equity and hedge fund managers. The capital gains taxes, which are paid when an asset is sold, are expected to raise over $370bn over a decade. The new rates will eliminate the preferential tax treatment of the profits of money managers, the so-called “carried interest”.
The proposals prompted a strong sell-off in stocks across every area. The S&P500, with all its 11 sectors in the red, traded lower by 0.92%, or 38.44 points, to end the session at 4,134.98. The Dow Jones Industrial Average fell 0.94%, or 321.41 points, to 33,815.90. And the Nasdaq Composite dropped 0.94%, or 131.81 points, to finish at 13,818.41. Technology and other growth stocks were among the losers on Thursday. Twitter fell more than 4%, while Tesla sank 3.3%. Amazon and Facebook slid by 1.5% each, Apple and Microsoft declined over 1% apiece.
The cryptocurrency market also took a hit. On Friday, the largest digital asset, bitcoin, fell for the seventh session in eight. On Thursday, bitcoin dropped more than 6% to reach $51,400. Today, the number one crypto token went even lower, trading at $48,400, another 6% to the downside.
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