As the Biden administration reveals its 2025 budget plan, the impact on investors in the United States is becoming more apparent, and for many, worrying. The plan suggests a big change to capital gains taxes, which could mean some Americans paying over 50% in total when state taxes are added.
This adjustment would set the highest top capital gains tax rate in more than a hundred years, sparking a lot of discussion and guessing about how it could affect people’s money and the economy altogether.
Biden’s Budget Proposal Sparks Concerns Among Investors
The heart of the new tax plan is a big increase in the tax rate for long-term capital gains and qualified dividends, going up to 44.6%. This change will mostly affect people with high incomes, over $1 million, and investment earnings above $400,000.
According to Alex Beene, a financial expert from the University of Tennessee at Martin, while this might sound alarming, the increase only applies to specific conditions set by the administration. Beene thinks the impact might not be as big as it seems at first. During a budget meeting, President Biden talks about significant tax changes.
But in states like California, New Jersey, Oregon, Minnesota, and New York, where state taxes are added to federal rates, the total tax on capital gains could go over 50%. In California, it could even be as high as 59%, and other states have slightly lower but still substantial rates. This could make investors rethink where they want to live and put their money.
Investment and Inflation Concerns
Michael Ryan, who knows a lot about finance and runs michaelryanmoney.com, is worried about what higher taxes on capital gains could mean for the economy.
He thinks it might make people less likely to invest, which is important for the economy to grow. Ryan also says that if policymakers let inflation go up, it could make tax revenues from gains on investments go up too, even if the investments aren’t making more money.
Another big part of Biden’s plan is getting rid of a tax break for people who invest in cryptocurrencies. This could change how people invest in crypto and make it more complicated for them.
How Is The Response from States and Investors?
People are already talking about maybe moving from high-tax states to places where taxes are lower. This is especially true now that a lot of people can work from anywhere, not just where their job is.
States like California and New York might see a lot of people and businesses leave because of high taxes and living costs.
Kevin Thompson, who started 9i Capital Group, thinks these changes might make a lot of investors sell off their stuff quickly to get better tax rates before the new rules start. Thompson’s idea shows how tax policies can quickly change how people invest and what happens in the market.
