Americans could be in for nasty tax surprise if this Joe Biden plan goes through

Even as the political firestorm over inheritance tax in India unfolds, Americans could be in for a nasty surprise if President Joe Biden gets another shot at the White House in the November elections.

Biden's budget proposal for 2025 includes what is being called the largest capital gains tax seen in 100 years. 

The proposal, released last month, notes that the administration wants to increase the top marginal rate on long-term capital gains dividends up to 44.6 percent, which would make the tax rate exceed 50 percent in states like California, New Jersey, New York and others.

The idea has already been panned by critics who say it will disincentivize investing and massively hurt industries such tech. 

More than just a heartburn

Since capital gains are not indexed to inflation, the actual rate that many will pay if Biden's tax plan materialises will be painfully higher. 

The proposal targets high earners with taxable income of more than $1 million and an investment income of more than four hundred thousand dollars.

In comparison, the capital gains tax in India ranges from 10% for long-term investments to 32% for short-term investments.

 
When was the last time tax rates were this bad?

The last time capital gains tax was even close to this high was in the late 1970s under Democratic President Jimmy Carter when the rate topped out at 40 percent. Capital gains are profits made from selling assets like stocks, businesses, homes and other investments. With this proposal, some states will see capital gains tax zoom beyond 50%.

Why is Joe Biden doing this?

The Biden administration argues that the tax is only targeted at the rich and will add more than 5 trillion dollars to the US economy in the next 10 years. But critics are not convinced, According to Tax Foundation, an economic think-tank, the move will reduce US GDP by 220 basis points in the long run, trim wages by 160 basis points and make over 700 thousand jobs go, adding that the new laws make the US tax code more complex.

Wait, there's more...

-- Biden's proposal plans on hiking corporate tax rate to 28% from the current 21%.

-- All deductions on salaries of over a million dollars a year will be removed.

-- The wealthiest in the US, with assets of over 100 million dollars, will have to pay a 25 per cent minimum tax.

-- It proposes to remove exemptions on gifts and estate taxes.

-- The estate tax, which is levied on the death of a person, will go up to an effective 60 to 80%.

The announcements have surprised US businesses in an election year. Republicans argue that the new taxes could spell disaster for small businesses and entrepreneurs as well as hurt innovation and growth.