‘Insatiable appetite for reckless spending’: President Biden’s $7.3 trillion budget blueprint would raise one tax rate to as high as 44.6% — here’s how the changes could impact you

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.

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 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.

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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.

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 will be 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 will likely undergo a major facelift as the Republican-controlled House is unlikely to go along with many, if not most, of the recommendations, specifically those that raise taxes on the wealthy.