Taxing Jeff Bezos more because he can afford to go to space won’t solve all our problems
If you are someone like me, you probably did not have a strong reaction to Jeff Bezos using his own money to go to space. However, for our politicians, the…
On April 28th, President Joe Biden unveiled “The American Families Plan“, a $1.8 trillion spending proposal aimed at families and children. The program will be funded partly through a raise on capital gains from 23.8 percent to 39.6 percent on high-income earners. Including the net investment income tax, it means that the top federal tax rate on capital gains will be 43.4 percent.
The average top tax rate on capital gains at the state level is about 5.2 percent, for a combined average rate of 29 percent under current law. If the top federal capital gains rate rises to 43.4 percent, this would raise the combined tax rate on long-term capital gains to 48.4 percent.
Minnesota of course already has a higher than average top marginal capital gains tax of 33.7 percent. Notwithstanding, under Biden’s proposal that would rise up to 53.3 percent.
high capital gains tax has a tremendous impact on the economy. Mainly that high taxes on capital gains distort capital allocation. When taxes are high enough, people may defer selling an asset in order not to realize the gain. Consequently, capital would be held up by owners and not flow efficiently in the market to where it is valued the most.
The Tax Foundation estimates that ” raising the top capital gains tax rate to 39.6 percent for those earning over $1 million would reduce long-run GDP by about 0.1 percent and reduce federal revenue by about $124 billion over 10 years.”