President Biden’s proposal to reduce the “racial wealth gap” by boosting the top marginal tax rate on long-term capital gains to an eye-popping 44.6 percent will have such a hard time passing Congress that it calls into question the administration’s true intentions in issuing the proposal.
That’s the view of one of Washington’s leading labor economists, Diana Furchtgott-Roth. The former acting assistant secretary for Economic Policy at the United States Treasury under President Trump, Ms. Furchtgott-Roth tells the Sun that the bill is not a serious economic proposal but rather a last-ditch effort by the Biden Administration to gain votes.
“It’s an election year. Everything that President Biden is putting out must be looked at through the lens of how it will help his reelection efforts.” Ms. Furchtgott-Roth reckons that the measure can’t pass a Republican-majority House and that even if the next election brings in a Democratic president and Congress, “it’s still very unlikely.”
“Taxing capital gains would reduce GDP, reduce job offerings, and reduce investment in the United States because people will just take their investments to lower tax areas,” Ms. Furchtgott-Roth says. “No one is just going to sit and let their capital gains be taxed at ordinary income rates, and it should not be.”
However, with the looming expiration in 2025 of President Trump’s tax cuts — provisions in the 2017 Tax Cuts and Jobs Act — in 2025, the next lawmakers will either have to renew the bill, let the current bill expire and have taxes increase, or offer a new proposal. If President Biden is reelected, and the House majority flips to the Democrats, this proposal may be at the top of the new Administration’s priority list.
The current federal tax rate for short-term capital gains ranges between 10 percent and 37 percent, with taxpayers in higher income brackets paying the higher rates. Long-term capital gains are similarly tiered according to income but taxed at a lower range between zero and 20 percent.
Americans for Tax Reform cautions that the new capital gains tax rate would come on top of state and local taxes, pushing the combined rate above 50 percent in many states. Californians would face a whopping combined federal-state rate of 59 percent, New Jersey a rate of 55.3 percent, Oregon 54.5 percent, Minnesota 54.4 percent, and New York State 53.4 percent.
The proposed new tax, Americans for Tax Reform writes, would hit small business owners as well. A couple who created a small business in their twenties and who, reaching 65, choose to sell it, would find themselves up against Mr. Biden’s 44.6 percent top rate plus state and local capital gains taxes.
High inflation will exacerbate the burden of capital gains tax, the director of communications at Americans for Tax Reform, John Kartch, argues. Since capital gains are not inflation adjusted despite inflation’s role in driving up gains, Americans will get “stuck paying tax on some ‘gains’ that are not real,” Mr. Kartch wrote in a post on X. “Biden’s high inflation makes this especially painful.”
Despite the Treasury’s claims, Ms. Furchtgott-Roth says, this proposal does nothing to target the root of race-based wealth inequality, which she identifies as educational opportunity. “The major reason that Black Americans have less access to opportunity is because they are forced into schools that do not give them the education they need to progress and have high wages,” she argues.
While median wealth across the board grew $51,800 between 2019 and 2022, the racial wealth gap increased by $49,950. Median wealth for white families in 2022 was $285,000, $61,600 for Hispanic families, and $44,900 for Black families.
Though the Treasury designs the Federal income tax code to reduce income inequality by taxing wealthier earners at higher rates, the Biden Administration argues that “some elements of the tax code exacerbate differences in income and wealth accumulation,” pointing to estimates that white families overwhelmingly benefit from the lower tax rates of capital gains and qualified dividends over the steeper tax rates on income.
According to the Treasury, in 2023, some 92 percent of this discrepancy benefited white families whereas “only 2 percent of the tax expenditure accrued to Black families and 3 percent to Hispanic families.”
Or, as the president of the Center for the Study of Partisanship and Ideology, Richard Hanania, wrote sarcastically in a post on X, “whites own too many stocks and businesses, so they need to pay.” Since its posting yesterday, the tweet has received a million views and counting.
Mr. Hanania, in a message to the Sun, warns that the “bad politics” bill is an indication that President Biden “is doing more and more to appeal to the radical left.” So will this effort capture the votes Biden seeks? Ms. Furchtgott-Roth thinks not. “Black voters are not going to fall for this.”
