Last week, President Biden introduced a proposed budget aimed at wealthy Americans with the intent of extending Medicare funding. The plan includes a series of new tax increases on asset gains, mostly targeting rich investors. According to the White House, one of the highlights is that households with a net worth exceeding $100 million would see a 25% minimum capital gains tax. Additionally, the plan seeks to raise the capital gains tax rate for investments to 39.6% on corporations and high-income earners, nearly doubling the rate from the current 20%.
The proposal also targets the Net Investment Income Tax (NIIT). It would increase to 5%, up from the current 3.8% on earnings above $400k, including capital gains, pass-through business income, and regular income combined. Currently, the NIIT applies to taxpayers earning above $200k for single filers and $250k for married couples filing jointly.
The White House is also seeking to limit contributions to tax-favored retirement accounts. This includes IRAs held by single taxpayers with incomes greater than $400k or joint filers earning over $450K.
Like-kind or 1031 exchanges, used mostly by real estate investors, are also being targeted. These exchanges allow investors to delay paying capital gains on the sale of real estate, provided the funds are used to purchase another property immediately. (Primary residences are not eligible for 1031 exchange) Proposed is a like-kind deferral of gains up to $500k for single taxpayers, while it would cap married individuals filing jointly at $1 million.
There are additional components proposed under what is being called a “wealth tax” on the top one percent in Biden’s budget. The proposed tax changes are meant to close some loopholes while essentially proposing an approximate 17% increase for the wealthiest Americans.
The $6.8 trillion annual budget for the 2024 fiscal year must pass Congress prior to any proposed changed becoming law.
Author, Jeff Spiegel
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