Whoever controls the Biden administration (I harbor serious doubts it’s Joe Biden OR Kamala Harris) sure wants to pull every lever marked “do not touch” as fast as possible right now. One big move proposes doubling the capital gains tax on wealthy investors.
It’s hard to overstate what a big deal that actually is. Very few things matter as much to a society as providing people productive opportunities to better themselves and their lives while serving others. That’s what businesses do. And businesses require investment. Discouraging investment short-circuits that virtuous cycle. This is something so obvious and so important even politicians seemed to understand not to mess it up. Until now.
Capital gains taxes occur whenever someone sells something for a higher price than they bought it. It could be a stock, a whole company, or even a home. Basically, if you make a good investment, you owe capital gains taxes. The Biden administration wants to raise the capital gains tax rate from 20% to 39.6% on “the wealthiest sliver of investors.” What they won’t tell you is that sliver of investors accounts for a much, much larger portion of the investable capital available to fund the US economy. These are – by definition – the wealthiest investors.
Both politicians and regular people understand putting a tax on something discourages it. “Sin taxes” spring from that very notion. We understand taxing cigarettes, alcohol and gambling discourages people from partaking in them. So, explain to me why we would want to do that with investments?
Ask yourself this… why has the capital gains tax long been set at the almost reasonable 20%? Politicians always avoided raising these taxes because they understood just how damaging it could be for the whole country, not just for the people paying the tax. It turns out raising the capital gains tax discourages investment in the businesses that make America successful, vibrant and wealthy enough to finance the programs politicians use to buy your vote.