White House Seeks Higher Taxes from Landlords

White House Seeks Higher Taxes from Landlords

In a significant move aimed ostensibly at addressing income “inequality” and generating additional revenue for government spending initiatives, President Biden recently proposed an increase in the capital gains tax as well as the Net Investment Income Tax (NIIT). This proposal is part of a broader economic strategy to ensure that America’s economic contributors pay an even higher share of their already disproportionate tax burden.

Massive Capital Gains Tax Increase*

Currently, long-term capital gains—profits from the sale of assets held for more than a year—are taxed at a maximum rate of 20%. President Biden’s proposal seeks to raise this rate to 39.6% for individuals earning over $1 million annually. This change aligns the capital gains tax rate with the top marginal income tax rate, under the misguided notion that gains should be taxed similarly to wages and salaries.

Critics note that the capital gains tax unfairly taxes assets that have merely increased in value due to inflation, rather than actual economic gains. For example, if an individual purchases a piece of property or a stock and holds it for many years, the nominal increase in its value might largely reflect inflation rather than a true increase in purchasing power. As a result, when the asset is sold, the capital gains tax is applied to the entire nominal gain, effectively taxing inflation.

This issue underscores a fundamental challenge with the capital gains tax: it does not differentiate between real gains and inflationary gains. Consequently, taxpayers can end up paying taxes on increases in asset value that do not actually represent an improvement in their economic situation. Indexing capital gains to inflation could address this problem.

Medicare Income Tax Increase*

In addition to the capital gains tax increase, President Biden proposes to raise the Medicare Income Tax (which currently stands at 3.8%) to 5.0% for anyone earning at least $400,000. Further, the president proposes an expansion of the Net Investment Income tax to cover active income from S-corporations and other pass-through entities that are currently not subject to NIIT.

Economic and Political Implications

Economically, the Biden administration argues that these tax changes will promote greater fiscal responsibility and reduce the deficit without hindering economic growth. By focusing on high-income earners, the proposal aims to redistribute wealth more effectively and fund initiatives that benefit a broader segment of the population, such as expanded child care, elder care, and infrastructure improvements.

However, opposition is strong among Republicans and some business groups, who contend that higher taxes on investments could discourage capital formation, reduce economic growth, and negatively impact the financial markets. They argue that the proposal could lead to decreased investment, job losses, and slower economic recovery, particularly in a post-pandemic landscape.

*https://www.forbes.com/sites/robertwood/2024/04/29/president-biden-has-proposed-tax-increases-here-are-six-of-them/?sh=681f444e168c

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