President Joe Biden briefly speaks to reporters as he departs the White House in Washington, D.C., to travel to Syracuse, New York, to speak on the economy on April 25, 2024. (Photo: Chip Somodevilla/Getty Images)
The Biden administration’s analysis of its revenue proposals for fiscal year 2025 argues targeted tax hikes that disproportionately affect white people would ease racial wealth inequality.
Increasing taxes on capital gains and income-based wealth would reduce racial wealth inequality for black and Hispanic families, the Treasury Department outlined in the analysis published in mid-March. The Treasury points out that white families disproportionately hold assets subject to capital gains tax or are in a higher tax bracket, meaning a hike in those taxes would benefit black and Hispanic families.
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The Biden administration argues for taxing capital income for high-income earners at “ordinary rates,” increasing the top rate from 37% to 39.6% for those who earn more than $1 million a year. Taxes on net investment income would also be hiked by 1.2 percentage points to 5% for those who make over $400,000 per year, bringing the total top marginal rate to 44.6%.
“Taxing capital gains at 44.6% at the federal level—not to mention state taxes—would be economic suicide,” Preston Brashers, research fellow for tax policy in The Heritage Foundation’s Grover M. Hermann Center for the Federal Budget, told the Daily Caller News Foundation, adding:
Before the tax ever took effect, investors would rush to pull their money out of equities subject to such exorbitant tax rates. U.S. businesses would be starved for capital, and business activity would slow to a crawl. Ultimately, corporate income and capital gains income would fall off a cliff, so the net result would be less tax revenue, not more. The middle class and working class would be slammed with mass layoffs and lower real wages.
(Heritage founded The Daily Signal in 2014.)
The Treasury estimates that white families are the recipients of 92% of the benefits of preferential rates on capital gains and qualified dividends, compared to 2% and 3% for Hispanic families. Only 0.4% of white families, less than 0.05% of black families, and 0.1% of Hispanic families will be affected by the proposed rule change on capital gains.
“So, if President [Joe] Biden’s goal of redistribution is to make the rich poorer, his proposal would be successful,” Brashers told the Daily Caller News Foundation. “But if the goal is to lift up the middle class, the plan would fail spectacularly. Note, even the Urban-Brookings Tax Policy Center uses estimates that imply that the revenue-maximizing long-term capital gains rate is about 28%, so it’s clear that Biden’s proposal is on the wrong side of the Laffer curve.”
The proposal also calls for establishing a minimum 25% income tax that includes unrealized capital gains for those with wealth over $100 million. The Biden administration argues that the wealthiest taxpayers utilize their stake in unrealized gains to lower their total income and reduce their tax liability, but taxing unrealized gains may force many business owners to sell stakes in their company if they are not liquid enough to pay the burden.
“The wealthy already pay far more than their fair share, while the tax burden on large corporations ends up landing on individuals across the economy, including low-income individuals,” Chris Edwards, the Kilts Family Chair in Fiscal Studies at the Cato Institute, told the Daily Caller News Foundation.
The Biden administration also calls for ending a “loophole” that allows families to postpone their estate tax burden by creating trust assets that benefit multiple future generations and are not taxed on the death of the beneficiary. Around 30% of white families receive an inheritance that would qualify as of 2019, compared to 10% for black families and 7% for Hispanic families.
“Left-wing Biden economists seem unable to appreciate that raising taxes on capital hurts labor. Capital and labor work together to produce economic growth,” Edwards told the Daily Caller News Foundation. “They are complements. The Biden economists seem to hold the Marxist view that capital and labor are bitter enemies, and that the only way that labor can win is for the government to crush capital.”
The Biden administration is also proposing to expand the child tax credit, temporarily increasing the amount given per child and permanently restoring the full refundability provision. The Treasury argues that it will ease racial disparities since a disproportionate number of black and Hispanic kids have benefited from it in the past.
“These proposals would also increase the fairness of the tax system by addressing some of the features that have historically reinforced racial disparities,” the proposal reads. “Over time, these proposals are expected to increase wealth accumulation by low- and middle-income families and reduce racial wealth gaps.”
The proposal was released in conjunction with calls from the Biden administration to drastically increase spending for fiscal year 2025, adding at least $14.8 trillion to the national debt by the end of a presumptive second term for the president.
The national debt has continued to grow rapidly under President Joe Biden, totaling more than $34.55 trillion as of April 26, up from $34 trillion at the beginning of the year, according to the Treasury Department.
Huge government spending is also putting the U.S. economy at risk of stagflation, with first quarter growth only totaling 1.6% while inflation remains high at 3.5% in March year-over-year.
“This hints at the false view that sadly underlies much of the Biden administration’s economic policy: high-earners only achieve success through luck, and low-earners can only achieve success through government handouts,” Edwards told the Daily Caller News Foundation. “That is an appalling, un-American view.”
The White House did not immediately respond to a request to comment from the Daily Caller News Foundation.
