President Joe Biden caused a stir at the end of April with his proposal to significantly raise capital gains taxes and potentially tax unrealized gains. This plan, with a maximum rate of 44.6%, would be the highest in history, surpassing even President Jimmy Carter’s 40% rate in the late 1970s. However, the focus of the plan is primarily on increasing taxes for high-net-worth individuals, with the unrealized gains tax affecting only those with wealth exceeding $100 million.
The American University conducted a study to assess the impact of President Biden’s tax increase proposal. The findings suggest that the effects are likely to be positive overall, as wealth inequality in the United States means that only a small percentage of the population would be impacted. Additionally, the plan could help reverse the trend of wealth redistribution that has favored the top 1% since the 2008 financial crisis, with a significant transfer of wealth occurring during the COVID-19 pandemic.
The study also predicts that the tax hike could lead to increased economic growth, boosting the gross domestic product (GDP) by 1% and government revenue by approximately 5%. Another potential benefit of the proposed policy is its potential to address America’s growing public debt. By reducing the deficit by an estimated $220 billion, the tax plan could have a significant impact, especially considering the country’s staggering debt of over $34 trillion as of the end of 2023.
While the reduction in the deficit may seem modest in comparison to the overall debt, it could have compounding effects over time. By slowing the rate at which debt is accumulated, the funds saved could be directed towards various projects and programs that could help stimulate economic growth and potentially outpace the growth of debt.
