Jun 14, 2024
President Joe Biden has a message for the wealthiest Americans: get ready to pay your fair share.
Biden's federal budget proposal includes plans to cut taxes for working families by increasing them for both the wealthy and big corporations.
Advertisement
The budget blueprint for fiscal 2025 (which begins in October) will serve as the first of many tax battles expected to go down in Washington over the next year.
Republicans have already taken issue with the proposed $7.3 trillion budget, with House of Representatives Speaker Mike Johnson referring to it as an “insatiable appetite for reckless spending” and a “disregard for fiscal responsibility,” according to a Reuters report.
While it remains to be seen if Biden’s policy priorities will make it into the final draft of the budget since that’ll require approval from a Republican-led Congress, here’s a closer look at how some of these proposals could impact Americans.
Capital gains
One major area of contention is the fact that Biden’s budget calls for a 44.6% federal rate on investment income and other earnings for those making more than $1 million.
This income, known as capital gains, includes any profits from selling an asset, such as stocks, cryptocurrencies and real estate. Any gains in the asset’s valuation are subject to tax, just like any other income. But keep in mind that only gains that come from the sale of an asset are subject to this tax.
Advertisement
As it stands, Biden’s budget proposal would essentially increase the capital gains tax to match the standard taxation of wage and investment income.
To break this down further, that would mean long-term capital gains for those earning at least $1 million would be taxed at a whopping rate of 39.6% — a significant increase from 20%.
And the wealthiest Americans will also be asked to step up their contributions to the Medicare tax by increasing their rate to 5% (from 3.8%) in an effort to buttress the program’s trust fund. Along with the capital gains rate, this brings the wealthiest taxpayers’ liability up to a 44.6% federal rate on investment income and other earnings.
The Biden administration claims this would reduce deficits as a share of the economy over the next decade. However, critics worry these higher taxes lead to decreased economic output and growth, reduce U.S. competitiveness and further complicate the tax code.
Must Read
- Dave Ramsey warns nearly 50% of Americans are making 1 big Social Security mistake — here’s what it is and the simple steps to fix it ASAP
- Robert Kiyosaki begs investors not to miss this ‘explosion’ — says this 1 asset will surge 400% in a year
- Vanguard reveals what could be coming for U.S. stocks, and it’s raising alarm bells for retirees. Here’s why and how to protect yourself
Join 250,000+ readers and get Moneywise’s best stories and exclusive interviews first — clear insights curated and delivered weekly. Subscribe now.
A second death tax
The plan also proposes taxing assets when an owner dies, ending a benefit that currently allows unrealized appreciation to go untaxed when transferred to an heir.
Advertisement
In essence, death taxes are imposed on a person’s estate upon their passing. These taxes are the responsibility of the beneficiary who receives the property via the deceased’s will or estate.
These taxes are also referred to as estate taxes, death duties and inheritance taxes, and generally apply to estates and inheritances over a specific value.
The Biden administration’s federal budget plan for fiscal 2025 calls for taxing unrealized capital gains at death above a $5 million exemption ($10 million for joint filers), resulting in mandatory capital gains at death, in addition to the current death tax.
Where does it go from here?
Biden’s budget proposal has been flipped to Congress, which is in charge of writing the federal budget. The draft prepared by the White House is viewed as the starting point for negotiations between the president’s administration and lawmakers moving forward.
However, Biden’s proposal is likely to undergo a major facelift as the Republican-controlled House is now in the process of preparing its own draft of the 2025 budget. And Republican lawmakers are unlikely to go along with many, if not most, of the recommendations, specifically those that raise taxes on the wealthy.
You May Also Like
- Turning 50 with $0 saved for retirement? Most people don’t realize they’re actually just entering their prime earning decade. Here are 6 ways to catch up fast
- This 20-year-old lotto winner refused $1M in cash and chose $1,000/week for life. Now she’s getting slammed for it. Which option would you pick?
- Warren Buffett used these 8 repeatable money rules to turn $9,800 into a $150B fortune. Start using them today to get rich (and stay rich)
- Here are 5 easy ways to own multiple properties like Bezos and Beyoncé. You can start with $10 (and no, you don’t have to manage a single thing)
Laura Grande is a freelance contributor with nearly 15 years of industry experience. Throughout her career she's written about and edited a range of topics, from personal finance and politics to health and pop culture. Her work has appeared on HGTV Canada, Food Network Canada, Today's Parent, Zoomer Magazine and SLICE, among others.
