Capital gain tax rates are a constant subject of political debate, and they’re once again part of the new proposed tax plan. Republicans argue that capital gains should be low because income is already taxed when it’s earned, and taxing investments has the effect of lowering overall economic growth. Democrats believe the wealthiest Americans should pay a lot more in capital gains to bring their tax burden closer in line with working people. Here’s how Biden’s tax proposals would impact capital gains rates around the country.
- California is set to have the highest top marginal tax rate on capital gains in the country, totalling 56.7%.
- 14 states would see their top rates surpass 50% on capital gains under President Biden’s proposal.
- The vast majority of states would see top capital gain tax rates almost double, rising from about 24% to 43% in most places.
- President Biden wants to spend a lot of the money he’s raising through taxes, leaving the future economic picture of his policy proposals up for debate.
The Tax Foundation originally crunched the numbers state by state to determine the before-and-after picture for President Biden’s proposed tax plan. We added an intuitive color-coded scale to illustrate how the top rates are changing. We also set the before-and-after to an animated GIF, allowing you to immediately see how Biden’s proposal is going to impact tax rates around the country.
States with the Highest Capital Gain Tax Rates Under Biden’s Plan
| State | Top Capital Gains Rate (Proposed) |
|---|---|
| 1. California | 56.7% |
| 2. New York | 54.3% |
| 3. New Jersey | 54.2% |
| 4. Minnesota | 53.3% |
| 5. Oregon | 53.3% |
| 6. Washington, D.C. | 52.4% |
| 7. Vermont | 52.2% |
| 8. Hawaii | 50.7% |
| 9. Maine | 50.6% |
| 10. Connecticut | 50.4% |
Capital gains can be a little tricky to understand, so are they and what’s the new proposed tax plan? Taxpayers have a capital gain when they sell an asset for more than what they originally paid for it. The federal government levies different taxes for short-term capital gains (meaning the owner held the asset for less than a year) and long-term capital gains. State and local governments tack on additional taxes, plus an additional net investment income tax at the federal level for certain high-earners. And like income taxes, capital gains are progressive, meaning the more investment income someone makes, the higher the applicable rate. Our visualization takes all of this into consideration for long-term capital gains, focusing on the combined total highest tax rate.
And President Biden’s proposal would dramatically increase the highest marginal capital gain tax rates in several places across the country. Residents in 14 states would see a top capital gain tax rate of more than 50%, led by California (56.7%), New York (54.3%) and New Jersey (54.2%). In fact, no state would be below 40%, and the vast majority would be above 45%. The combined impact of Biden’s proposal is to practically double the top capital gains rate for most states, with the typical top rate going up from about 24% to 43%.
There are a couple important caveats to keep in mind about our visual. Biden wants to raise a lot of new revenue partly because he wants to spend a lot of it on infrastructure. And indeed total U.S. government revenue has been declining in recent years. Capital gain taxes are only incurred when an investor sells an asset and realizes the gain. Biden’s tax plan is just now in front of Congress, meaning that the exact rates are about to be subject to intense multiple rounds of negotiation both between political parties and within the Democratic party. Things could still change very quickly.
How do you think Biden’s tax proposal will impact the economy? Will it decrease inequality or depress economic growth? Let us know in the comments.
Data: Table 1.1