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Biden's tax reform: A closer look at proposed capital gains changes

Biden's tax reform: A closer look at proposed capital gains changes

In an ambitious move to reshape the US tax landscape, President Joe Biden has unveiled a series of proposed tax reforms targeting the nation's wealthiest individuals.

Central to his plan is a significant overhaul of the capital gains tax system, aiming to bridge the income inequality gap and secure funding for critical social programs.

Key components of Biden's tax reform proposal

Doubling the capital gains tax for the wealthiest

At the heart of Biden's tax reform is the proposal to nearly double the capital gains tax rate for individuals earning over $1 million annually.

The current maximum rate of 20% could jump to 39.6%, aligning the taxation of investment income with that of wages for high earners.

Targeting the carried interest loophole

The administration also aims to close the carried interest loophole, which currently allows certain investment managers to pay taxes at the lower capital gains rate rather than the higher income tax rates.

Under the new proposal, this income would be taxed as ordinary income.

Bolstering Medicare through tax increases

To support the Medicare program, Biden proposes increasing the Medicare tax rate from 3.8% to 5% for those making more than $400,000 a year.

This move seeks to ensure the program's sustainability as the population ages.

Introducing a minimum tax for billionaires

A novel aspect of Biden's plan is the introduction of a minimum tax rate of 25% for households with a net worth exceeding $100 million, aiming to ensure that the ultra-wealthy contribute their fair share to the nation's coffers.

Reversing previous tax cuts

The proposal also includes increasing the top income tax rate for wealthier taxpayers from 37% to 39.6%, effectively undoing parts of the Tax Cuts and Jobs Act enacted under President Donald Trump.

Restricting real estate tax breaks

Finally, Biden seeks to limit the "like-kind exchange" loophole, which currently allows real estate investors to defer capital gains taxes indefinitely by reinvesting in similar properties.

Potential impact and challenges ahead

These proposed changes have sparked a heated debate about their potential effects on investment behavior and the broader economy.

Critics argue that the increased capital gains tax could deter investment, while supporters view it as a crucial step toward reducing wealth inequality and funding essential services.

Given the current political climate and a divided Congress, these proposals face significant hurdles.

The outcome of these tax reforms remains uncertain, but they underscore the Biden administration's commitment to addressing income inequality through tax policy.


President Biden's proposed tax reforms represent a bold attempt to make the tax code more progressive and equitable.

While the path to enactment is fraught with challenges, the proposals highlight a clear intention to ensure that the wealthiest Americans contribute more to the nation's well-being.

Ines Zemelman, EA
Founder of TFX