Increase capital gains tax to fund social security

A senior member of the Democratic Senate unveiled Thursday a detailed plan to reorganize the way capital gains are taxed, fueling a new debate in Washington on wealth and inequality.

Senator Ron Wyden, the most democratic member of the Senate Finance Committee, has proposed raising capital gains taxes at the same rate as ordinary income. He also called on investors to pay taxes on their earnings each year, rather than when the assets are sold or transferred.

The Oregon senator estimates that the plan could generate between $ 1,500 and $ 2 trillion over a decade, and that the proceeds would be used to strengthen the Social Security Trust Fund.

"It is time for us to have a new system where everyone pays what he owes and that the wealthiest Americans do not pay with average tax rates lower than those of their drivers, nannies and house workers, "wrote Wyden in a report released Thursday.

Democrats have long sought to end the preferential tax treatment of capital gains. Currently, income from assets such as stocks, real estate and even the arts are taxed at 20%. The maximum wage income rate is 37%, a disparity that some policymakers believe encourages investing rather than working and aggravating the wealth gap.

But Wyden's proposal goes beyond that. It describes a new system in which capital gains are taxed every year, even if they are not yet realized. This would require investors to determine the fair value of their marketable assets each year: earnings would be taxed at ordinary rates and investors could deduct potential losses.

These new provisions would apply only to the rich. The new rules come into effect as soon as taxpayers earn $ 1 million in income or hold $ 10 million in eligible assets for three consecutive years. If they do not meet these two thresholds for three consecutive years, the rules will no longer apply.

In addition, the new system includes special exemptions for family farms, homes and retirement savings. The first $ 5 million of family farms and $ 2 million of primary and secondary residences would not be included in the $ 10 million asset threshold. For savings for retirement, the first $ 3 million would be exempt from the threshold and none of the earnings from these accounts would be subject to annual tax.

According to the report, the goal is to protect the most popular saving instruments for average Americans and to ensure that taxpayers are not penalized if they receive a one-time bonanza.

"The middle class would not pay more taxes than today," he said.

Wyden does not specify what the new combined tax rates would be for ordinary income and capital gains. But the Democrats have chosen to reduce the top income tax rate to 39.6% – at the very least.

Wyden's proposal is the most comprehensive legislative effort to date to tax capital gains. It follows a heated debate in Washington and the election campaign about whether America's wealthiest households are paying their fair share.

Nearly all major candidates in the Democratic presidential election support the taxation of capital gains as ordinary income, and former Housing Secretary Julian Castro explicitly supported a system such as the proposal from Wyden. Senator Elizabeth Warren presented an even more aggressive plan Thursday that would impose a new 14.8% tax on investment income to fund social security.

On Capitol Hill, Republicans and Democrats disagree on a proposal that would lower taxes on investment income by allowing investors to adjust the value of their gains to inflation. Senator GOP, Ted Cruz, of Texas, led the initiative by introducing a bill to codify the measure last year. He also urged the White House to consider making this change through an executive order – a controversial maneuver that President Donald Trump himself has hesitated.

Last month, 42 Democratic senators responded with a letter opposing this effort, with the aim of thwarting Congress for the benefit of the rich.

"This unilateral initiative would benefit almost exclusively the wealthiest Americans," the letter said. "The proposal would do almost nothing to stimulate the economy because it would provide a boon for existing fixed assets rather than incentivize new investments."