President Biden's 2025 budget proposal aims to increase the capital gains tax to 44.6%.
President Biden has proposed raising the capital gains tax rate to 44.6%, marking the highest formal federal capital gains rate since its inception. This proposal was detailed in the Budget of the United States Government for Fiscal Year 2025 and was further explained in the General Explanations of the Administration’s Fiscal Year 2025 Revenue Proposals.
According to the documents, the 44.6% rate would be the culmination of a series of increases affecting high earners. Specifically, the proposal suggests raising the long-term capital gains rate to 37% for taxpayers with taxable income above $1 million. An additional 1.2 percentage point increase in the net investment income tax would apply to investment income over $400,000.
In addition to the capital gains tax hike, the Biden administration's Budget also aims to modify the tax treatment of Bitcoin. The proposal seeks to eliminate a tax subsidy that currently allows Bitcoin investors to report excessive losses by selling assets at a loss, claiming a tax deduction, and repurchasing the same asset shortly afterward. The new rules would align the tax treatment of Bitcoin with those of stocks and securities.
As it stands, the current capital gains tax rate for long-term investments is capped at 20%. If the proposal is enacted, the combined federal-state capital gains tax rate could surpass 50% in many states, which is of particular concern to investors in both the stock market and Bitcoin. The tax increase also comes with the complexity of not being adjusted for inflation.
The proposal's potential future implications could be far-reaching, particularly for investors with high incomes. It remains to be seen how Congress will respond to President Biden's tax plan and what impact it will have on investors and the overall economy.
