House Democrats propose to raise capital gains tax to 28.8%

House Democrats on Monday proposed raising the maximum tax rate on capital gains and eligible dividends to 28.8%, one of several tax reforms aimed at wealthy Americans to help fund a budget plan of 3.5 trillion dollars.

The highest federal rate would be 25% on long-term capital gains, which is an increase from the current 20%. (Long-term capital gains are realized on appreciated assets sold after more than one year of ownership.) In addition to an existing surcharge of 3.8% on net investment income, total taxation would be 28.8%.

The new rate would apply to sales of shares and other assets that take place after September 13, 2021, when House Democrats introduced the tax portions of their legislation.

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Beginning in 2022, taxpayers would be subject to the highest federal rate if their taxable income exceeds $ 400,000 (single), $ 425,000 (head of household) and $ 450,000 (married spouse), according to a House Ways aide. and Means Committee.

This matches the Biden administration’s pledge not to raise taxes on households earning less than $ 400,000. However, it is below the current income thresholds to which the maximum rate applies.

The capital gains policy differs from that previously launched by the White House, which called for a maximum combined rate of 43.4% on those with income above $ 1 million. House Democrats also appear to have omitted a proposal from the Biden administration to tax capital gains on the death of the owner.

Democrats broadly aim to make the tax code fairer and raise trillions of dollars to extend the country’s social safety net and invest to fight climate change. These changes are expected to cost up to $ 3.5 trillion.

Raising the rate of surplus value (and lowering the income thresholds to which that rate applies) would raise $ 123 billion over the next decade, according to an estimate released Monday by the Joint Committee on Taxation. .

The House Democrats’ tax proposals are not a done deal, however. Democrats in the Senate may seek different reforms. Passing a law may not be an easy task given the very slim margins of Democrats in the House and Senate and the unified Republican opposition.

In addition to increasing the capital gains tax rate, House Democrats’ legislation would create a 3% surtax on adjusted personal adjusted gross income above $ 5 million, starting in 2022.

The bill would also increase the top marginal tax rate to 39.6% from 37%. Among other reforms, it would also speed up the reduction of the inheritance tax exemption (to $ 5 million from the current $ 11.7 million for individuals) and change the way the rich use retirement accounts. individual and 401 (k) plans.

The bill would also provide $ 78.9 billion in funding to the IRS to strengthen tax enforcement for taxpayers earning more than $ 400,000 per year.