Stocks dropped Thursday amid reports that the Biden administration will propose a large hike of the capital gains tax in order to pay for his childcare and family spending plan.
The proposal would nearly double the capital gains tax for wealthy individuals from the 20% rate it is at now to 39.6%. Individuals making $1 million or more could end up paying a federal rate of up to 43.4% when an existing Obamacare surtax on investment income is included.
The news, while not yet confirmed, caused stocks to drop the most in over a month, with the S&P 500 down about 0.92% at close. The Dow Jones Industrial Average closed more than 320 points lower, and the NASDAQ was down by about 0.94%.
The possible capital gains tax hike is part of a second spending proposal (after Biden’s $2.3 trillion infrastructure package) and is being billed as the American Families Plan. The plan is expected to cost at least $1 trillion and is reportedly set to include a provision that would extend the child tax credit, which was recently strengthened for a year as part of Biden’s $1.9 trillion American Rescue Plan, through 2025.
White House press secretary Jen Psaki didn’t deny the Thursday reports that the White House is considering a proposal to nearly double the capital gains tax and said that the president would address his American Families Plan during a joint session of Congress next Wednesday. “We’re still finalizing what the pay-fors look like,” she said.
While the newest plan targeting families is reported to include changes to the capital gains and income taxes, Biden’s infrastructure package, billed as the American Jobs Plan, is planned to be offset by changes to the corporate tax structure, including a hike of the corporate tax rate from 21% to 28%.
Republicans are unlikely to support any increases in taxes from where they were set by the GOP-led Congress back in 2017. Chuck Grassley of Iowa, a top Republican on the Senate Finance Committee, said Biden’s reported capital gains plan would “cut down on investment and cause unemployment.”
GOP senators introduced their own counteroffer to Biden’s infrastructure plan on Thursday. The lawmakers proposed a framework that would cost less than a quarter of the White House plan and target infrastructure more narrowly, focusing on things such as roads, bridges, and public transit systems. The GOP framework was pegged at $568 billion.
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