The stock market plummeted late Thursday afternoon following a report that described how President Joe Biden plans to pay for his progressive agenda, as experts warned that his proposed capital gains tax hike could—and would—have a detrimental impact on 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.”
As a result, the stock market quickly nosedived after the report was published, with the Dow losing one percent of its overall value.
“It is insanity,” Scott Minerd said, who is in charge of $310 billion in assets with the 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—added: “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.”
Scaramucci added: “We should pay for universal pre-k and free community college without dramatically raising taxes. We’re still in the midst of a global pandemic that’s caused historic unemployment. We shouldn’t be raising taxes and driving jobs out of US.”
And again: “We need to refresh our tax code more broadly. Raising LT cap gains to almost 50% isn’t the answer. I would move to a more progressive destination-based, consumption-based tax system. Eliminate income taxes for any couple making less than $100k, for starters.”
Tim Draper—one of America’s top venture capitalists—sent out a warning 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 reported:
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.
The report continued:
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 said 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.”