Trading Insights
Biden’s New Tax Proposal: “20% charge whenever an asset increases in value”
Biden’s new tax proposal could have massive implications for the market. President Biden ran his 2020 campaign as a centrist who wanted to meld the interests of both parties. But his newest budget plan includes a tax proposal that, if passed, would be the most aggressive wealth tax in American history. And it would have […]
Biden’s new tax proposal could have massive implications for the market.
President Biden ran his 2020 campaign as a centrist who wanted to meld the interests of both parties. But his newest budget plan includes a tax proposal that, if passed, would be the most aggressive wealth tax in American history. And it would have serious implications for the stock market.
“Wealth taxes” were popularized by more progressive candidates like Elizabeth Warren and Bernie Sanders, but Biden’s latest proposal is considerably more forceful than those floated by his counterparts. For instance, while Warren had campaigned on a 2% wealth tax each year, Biden’s proposal asks for a 20% charge “whenever an asset increases in value”, regardless of whether or not it is sold.
When a major tax bill is passed, it’s never immediate. There would be a highly publicized date in which it would become law. A date that many long-term investors would likely front-run if it meant being able to avoid the newest tax.
Notably, this bill is just a proposal — one that will likely have a tough time passing through congress. There’s no reason to panic. But as if with any market-moving legislation, it’s important to keep a watchful eye on new developments.
After all, if passed, this bills wide-spanning market implications would likely force many long-term investors to reconsider their positions, and perhaps even their country of residence.
For more on Biden’s latest tax proposal, check out this article from Bloomberg.
Biden’s Billionaire Tax Would Punish Long-Term Investors
The president’s proposal is not only plagued by practical problems, but also undermines one of the core goals of a progressive tax system.
In his upcoming budget, President Joe Biden proposes reviving the wealth tax, a concept popularized by his rivals in the Democratic presidential primary two years ago. The proposal — now dubbed the “Billionaire Minimum Income Tax” — includes a few improvements over the 2020 version. Nonetheless, it remains a convoluted mess whose primary benefit could be achieved by simply eliminating a loophole in the current tax code.
A core difficulty faced by early wealth tax proposals is uncertainty over whether they are constitutional. The Constitution stipulates that any direct tax on citizens be levied such that each state pays the same amount per capita, an onerous requirement that makes it almost impossible to impose a wealth tax. The 16th Amendment, however, made income taxes legal. So, rather than levy a 2% tax on wealth each year, as Senator Elizabeth Warren envisioned, Biden’s plan would levy a charge of 20% whenever an asset increases in value.