President Joe Biden proposed a 39.6% top tax rate on capital gains and dividends for millionaires when he released his fiscal 2022 budget request to Congress on Friday.
That’s in line with the top rate the administration outlined in April as part of tax increases on the rich to help fund the American Families Plan.
Capital gains tax is owed on assets like stocks, bonds, mutual funds and homes that have appreciated in value.
More from Personal Finance:
Dividing cryptocurrency in a divorce settlement is complicated
What advocates say Biden gets wrong about student loan forgiveness
Parents should start planning now for monthly child tax credit payments
The wealthiest Americans currently pay a top federal tax rate of 20% on those returns, if the asset is held for more than a year. (They also pay a 3.8% Medicare surtax on investment earnings, bringing the top rate to a total 23.8%.)
Biden’s proposal aims to bring that capital gains tax rate more in line with that of their job income.
The White House plan creates a top rate of 43.4%, when factoring in a Medicare surtax on investment earnings. That’s a bit higher than the 39.6% top tax rate on ordinary income Biden proposed.
It would apply to taxpayers whose income exceeds $1 million (or $500,000 for couples filing separate tax returns).
The capital gains rate would be retroactive to the “date of announcement,” according to the Treasury document. It’s unclear whether that means Friday’s announcement or perhaps Biden’s outline of the American Families Plan in April.
That would effectively mean millionaires who sell appreciated assets going forward would be subject to the 43.4% rate.
Of course, the plan must still be approved by Congress, which isn’t assured.
Biden also proposed eliminating an existing tax break at death (the “step-up” in basis) that allows appreciated assets to pass to heirs tax-free. Investors therefore can’t necessarily avoid capital gains tax outright by holding until death.
Reforms to the capital gains tax will raise about $322 billion over a decade, according to the White House.
Correction: President Biden proposed a 39.6% top capital gains tax rate in his fiscal 2022 budget request to Congress. An earlier version misstated the figure.