President Joe Biden wants to raise the capital gains tax — and opponents say it will not only cost the country jobs but revenue as well.
Biden wants to raise the top federal tax rate on long-term capital gains and qualified dividends from 23.8 percent to 39.6 percent for those earning $1 million or more. With the net investment income tax, that’s an effective top rate of 43.3 percent at the federal level.
Since most states have some sort of a state income tax, that means the average top effective rate will be 48.4 percent — which they say would also be the rate in the Commonwealth of Massachusetts.
The Tax Foundation’s General Equilibrium Model projects that “raising the top capital gains tax rate to 39.6 percent for those earning over $1 million would reduce long-run GDP by about 0.1 percent and reduce federal revenue by about $124 billion over 10 years.” It also says this would kill 15,000 jobs in the United States and kill the equivalent of 15,000 full-time jobs.
David Tuerck of The Beacon Hill Institute, a right-of-center economics think tank, told NewBostonPost he thinks the jobs lost estimate is conservative and that he sees a greater disparate impact. He also said he thinks the negative effects will hit all states.
“I think their estimates of the negative effects on the economy are a little low,” Tuerck said in a telephone interview Friday. “It will be generally harmful to the economy. It’ll hurt people’s retirements. If they want to sell a property and have a comfortable retirement or want to make money by capital gains, they’ll be devastated. We’ll also see a reduction in realizations as people wait for a new administration. They’ll want to wait out this craziness.”
Tuerck also noted that some argue that capital gains should be tax-exempt because it’s a double tax. He noted that people already pay income taxes on this revenue, and he suggested this kind of taxation can discourage savings.
Paul Craney, spokesman for the Massachusetts Fiscal Alliance, also right of center, said it’s a tax increase that wouldn’t just hit the wealthy, and that it’s an especially bad idea during a tough economic time.
“People need to understand that an increase to the capital gains tax is a tax on middle class and oftentimes, a tax on one’s life savings,” Craney said. “The last thing government should be doing to get us out of an economic recession is increasing taxes.”
Some observers see smooth sailing ahead.
John Authers, a financial journalist with left-leaning Bloomberg, doesn’t have a problem with Biden’s proposed capital gains tax increases. He thinks that the stock market and the economy will be just fine if Biden’s proposal passes.
“The way the market handled the last major CGT increase, at the end of 2012, is instructive,” he wrote in an April 23 column. “As it grew clear that higher capital gains taxes were coming, the S&P 500 languished and went sideways for the last few months of the year, closing roughly where it had been in March. Then 2013 turned out to be a great year; stocks started their rally at the beginning of January and never really stopped.”
“If it becomes clear that some tax increase is going to happen, then some broad repetition of this pattern seems more likely, with returns that people might have been expecting for this year postponed until next,” he added.
And Kurt Wise of the Massachusetts Budget & Policy Center explained why he backs the capital gains tax increase.
“President Biden’s plan moves America back to a more equitable and adequate tax structure,” he told NewBostonPost in an email statement. “Eliminating special, low tax rates on the unearned income of millionaires, and instead requiring them to pay taxes at the same rates as wage and salaried workers is just common sense. The Biden tax plan would raise taxes on just over 1 percent of MA households, with the overwhelming share of the increase coming from the richest 1 percent of households. Many of these are the same households that received massive tax cuts beginning in 2017 with passage of the Tax Cuts and Jobs Act. These households are well-situated to contribute more to the collective project we call America.”
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