Biden’s capital gain tax

[Nick Schumacher]

Having a hard time finding info on Biden’s tax plan on long term capital gains. I see he’s Proposing basically doubling the rate for the 20% bracket. Does anyone know if his proposal effects the 0 and 15% bracket?

[Joe Splitrock]

Originally posted by @Nick Schumacher:

Having a hard time finding info on Biden’s tax plan on long term capital gains. I see he’s Proposing basically doubling the rate for the 20% bracket. Does anyone know if his proposal effects the 0 and 15% bracket?

 I tried to watch Biden address congress last night hoping he would shed more light on it, but his voice made me fall asleep. His stated plan is to increase capital gains for people earning over $1M from 20% to 39%. On the surface many people will say, "I don't make a million dollars, so it won't affect me." The trouble is that everything is interrelated. If a high income investor chooses to hold instead of selling investments, it has a negative effect on the economy. The process of buying, holding, improving and selling investments is a process that stimulates the economy. 

The tax projections don't always take into account how the changes affect behavior. For example, investors will choose to not sell investments, therefore instead of collecting 39%, you end up collecting 0% in some cases. Think of it this way, the government collects 20% today. If you double it to 39% and half the investors choose to not sell investments, you end up collecting the exact same amount of taxes. If we add massive spending and the expected tax revenue doesn't show up, the government is forced to push taxes to the middle class. 

There are two ways for the government to take in more tax revenue:

1. Increase economic activity. Since taxes are a percentage of income, increasing buying/selling and incomes will increase tax revenue. This is the theory behind lower taxes.

2. Increase taxes. Take a higher percentage or tax areas that were previously not taxed. The down side is increasing taxes reduces economic activity, so it has diminishing returns.