The stock market tanked late Thursday afternoon following a report about how President Joe Biden plans to pay for his progressive agenda, as experts warned that his proposed capital gains tax hike could have seriously negative ramifications for the country.
“Biden will propose almost doubling the capital gains tax rate for wealthy individuals to 39.6% to help pay for a raft of social spending that addresses long-standing inequality,” Bloomberg News reported. “For those earning $1 million or more, the new top rate, coupled with an existing surtax on investment income, means that federal tax rates for wealthy investors could be as high as 43.4%. The new marginal 39.6% rate would be an increase from the current base rate of 20%, the people said on the condition of anonymity because the plan is not yet public.”
The stock market quickly nosedived after the report was published, with the Dow losing 1% of its overall value.
Stocks extend drop; Dow falls 1% or nearly 350 points after reports that Biden will propose hiking capital gains tax for the wealthy https://t.co/G2vjJUIJ82 pic.twitter.com/mLC038l9R9
— CNBC Now (@CNBCnow) April 22, 2021
U.S. stocks turned lower after Bloomberg News reported that Biden is eyeing a capital gains tax as high as 43.4% for the wealthy https://t.co/xIHTBFBvid pic.twitter.com/v51No3nsrf
— Bloomberg (@business) April 22, 2021
“It is insanity,” said Scott Minerd, who oversees $310 billion in assets the investment firm Guggenheim Partners. “That’s not because I’m a Wall Street capitalist. The proposed rates of the current president’s administration . . . would probably reduce tax revenues over time and would discourage people from allocating money towards long-term investments.”
Anthony Scaramucci, founder of the hedge fund SkyBridge Capital, said, “This isn’t about feeling sorry for millionaires. Doubling the top capital gains rate would have deleterious effects on job creation and wage growth for middle-class workers.”
Tim Draper, one of America’s top venture capitalists, warned that Biden’s plan “might kill the golden goose that is America.”
“People need an incentive to build long term startups of value,” Draper tweeted. “In California, that would be a 56.4% tax burden. >50% Spells death to job creation.”
The Wall Street Journal Editorial Board wrote:
Keep in mind this is on the sale of gains that are often inflated as assets are held for years without adjustment for inflation. Oh, and Mr. Biden also wants to eliminate the step-up in basis on capital gains that accrues at death. All of this would add up to the highest rate on capital income since before the Steiger capital-gains tax cut of 1978.
We’ll have more to say on the Biden tax proposals in the days ahead, and stocks may bounce back as corporate earnings soar. But the lesson that investors should have learned by now is that Bernie Sanders was right when he predicted that Joe Biden would be the most left-wing President since FDR. Moderate Joe was always a mirage.
Venture capitalist David Stewart warned that Biden’s plans “could neuter America’s entrepreneurial ecosystem.”
“Founders and early employees shoulder pay cuts and increased risk when they leave an established company for a startup. They do this in part because there is the potential for a big payday at the end, at an advantageous capital gains tax rate,” Stewart wrote. “It will be harder for startups to recruit bc the tax system will punish their employees. A Googler making $400k/yr for 10 years will pay less tax vs a startup employee making $100k/year for 9 yrs, plus a $3m payday at year 10, despite the Googler earning more total income.”
Higher capital gains tax will also reduce incentives for landlords to build, buy, fix up, and/or rent properties. Apartments will become scarcer, more expensive, and more run down.
Biden will kill the quality & affordability of housing for young adults and working families.
— Geoffrey Miller (@primalpoly) April 23, 2021