April 27, 2021

Andrew Campbell 

US President Joe Biden proposes to raise capital gains taxes, about double the levies on capital gains and dividends, in order to fund the American Families Plan, an incoming education and child care spending package of about US$1 trillion. Capital gains and dividends taxes are currently 20%. Now President Biden plans to push the US tax rate hike on capital gains and dividends to 43.4%. However, investors who buy stock in 401(k) plans, individual retirement accounts and other similar plans, will remain not subject to the new taxation.

According to the 2018 Internal Revenue Service (IRS) data, Biden’s policy is expected to hit about 540,000 taxpayers whose annual income exceeds US$ 1 million. They represent 0.3% of the 154 million taxpayers. UBS Group AG, a Swiss multinational investment bank and financial services company, has indicated roughly 75% of US stock investors will not be affected by an increase in the capital gains tax rate.

The capital gains tax proposed will eliminate the preferential tax treatment of many private equities, hedge funds, and real estate investor profits, also known as carried interest, for their labor. Some investors like Scott Minerd, the founding and managing partner of the hedge fund Guggenheim Partners, and Timothy Cook Draper, an American venture capital investor, are reportedly furious about the change. Mr. Draper even warned it would kill the golden goose, America. However, President Biden’s new capital gains tax hike will still need to undergo Congressional and Senate approval in the coming months.

Photo : webshot.