In The Long Run, We Are All Dead: A Summary of Biden’s Capital Gains Tax

When the notorious John M. Keynes advocated for excessive government spending to achieve so-called full employment in the economy, free market advocates rightly warned that such public expenditures could cause irreparable damage to the economy in the long run. Keynes's response was far from the seriousness of economic theory: "In the long run, we are all dead".

Following the path to hell paved by Keynes, Biden has unveiled the Fiscal Year 2025 Budget proposal, which has sent Keynesians into celebration. Biden's fantasy involves increasing the budget by $5.3 trillion USD over ten years. Yes, you read that right. However, Biden plans to achieve this astronomical budget increase not by increasing economic productivity but by taxing those who are more productive even more. He is preparing to present one of the most frightening examples of economic populism with a new modern Robin Hood tale.

As expected, Biden's plunder plan aims to raise the already high marginal individual income tax, the marginal capital gains tax, and the corporate tax rate above the OECD (Organisation for Economic Co-operation and Development -  an intergovernmental organization with 38 member countries, serving as a forum coordinating international and domestic policies) and world averages. The real aim is not to make the economy more productive but to penalize the productive. The government is covering up its poor economic decisions. To keep Biden's voter base from shrinking, they're piling extra taxes on the shoulders of high-income groups.

Prior to the Fiscal Year 2025 Budget, this rate stood at 25.6%. As a result, the United States would hold the second-highest corporate tax rate among OECD countries, surpassed only by Colombia

A HORROR STORY FOR AMERICANS: FISCAL YEAR 2025 BUDGET PROPOSAL

Biden's FY 2025 Budget proposal is set to introduce significant shifts in US fiscal policy, featuring notable corporate and personal tax rate increases. This could position the United States as among the OECD countries with the highest tax burdens. For those who champion free market principles, these changes are troubling, signalling a move toward increased government involvement in the economy. This proposed budget raises crucial questions about economic freedom, the government's role in the private sector, and the potential long-term effects these policies might have on the competitiveness of businesses and the financial freedom of individuals.

The FY 2025 Budget Proposal suggests an increase in corporate tax rates from the current 21% to 28%. This would result in a combined marginal rate of 32.2% on corporate income, as per the current law. Before the FY 2025 Budget, this rate was 25.6%. Thus, the U.S. would have the second-highest corporate tax rate among OECD countries. Colombia has the highest rate in this category, at 35%.

Biden's proposal aims to increase the current 1% excise tax on stock buybacks to 4%. Stock buybacks, along with dividends, are methods companies use to distribute earnings to shareholders. When a company buys back its stock, shareholders reinvest that money into other public companies. By quadrupling the tax, the proposal could discourage companies from buying back their shares, shifting more towards distributing dividends instead. This change could also affect overall investment in the market.

TAXES RATES ON INDIVIDUAL INCOME

The budget proposal aims to increase the marginal tax rates on individual income. Currently, the highest combined marginal tax rate, including the federal and average state and local rates, stands at 42.5%. This comprises the highest federal tax rate of 37% plus an average from state and local taxes. Under the proposed changes, the top federal rate would increase to 39.6%, bringing the combined marginal tax rate to approximately 45.1%.

It's important to note that these figures don't account for the Medicare tax, which includes an additional 5% tax, half of which is typically paid by employers. If we were to include only the employee's portion of this Medicare tax, the top marginal rate would effectively rise to 47.6%. This adjusted figure is used to make more accurate comparisons with personal income tax systems in other OECD countries.

Under current U.S. law, the highest tax rate on capital gains is 29.1%, including a 20% base rate, a 3.8% investment income tax, and state taxes. Biden's proposal aims to tax high earners' capital gains as ordinary income and raise the investment income tax to 5%. According to the Tax Foundation, this would increase the top capital gains tax rate to 49.9%, making it the highest among OECD countries. This change can be seen as a punishment to investors.

THE COMBINED INTEGRATED TAX RATE

The "combined integrated tax rate" on corporate income considers the taxes companies pay on their profits and the taxes shareholders pay on dividends and capital gains. This rate shows the total tax impact on money earned by corporations by the time it reaches shareholders. Currently, this rate is 47.2% for corporate income that is paid out as capital gains. However, under Biden's new proposals, this rate would significantly increase to 66%, the highest among the countries in the OECD (Organization for Economic Cooperation and Development). This jump is due to proposed tax increases at both the corporate and shareholder levels.

The Combined Integrated Rate of Corporate Income is already high among OECD countries. Excluding the US, this rate is 42.1%. Currently, the US has a Combined Integrated Rate on Corporate Income of 47.2%, which is above the OECD average. However, under Biden's proposal for plunder, the Combined Integrated Rate on Corporate Income would rise to 66.0%. My advice to Biden is to stop hiding his fondness for communism and directly propose nationalizing companies. At least then, Americans would better understand who they are dealing with.

FY 2025 Budget Proposal could result in top marginal income tax rates surpassing 50 percent in five states and the District of Columbia. The states affected would be New York with a top rate of 54.4 percent, Oregon at 53.5 percent, California at 52.9 percent, New Jersey at 51.4 percent, Hawaii at 50.4 percent, and DC at 50.4 percent.

In the photo, you can see two socialists (Joe Biden and Bernie Sanders) eager to destroy America and everything it stands for, and one of them is succeeding

INSANE CAPITAL GAIN TAX RATE

The facts mentioned above might make your head spin. To better illustrate the seriousness of the situation, let me continue by directly quoting the capital gains tax rates from FY 2025:

“A separate proposal would first raise the top ordinary rate to 39.6%. An additional proposal would increase the net investment income tax rate by 1.2 percentage points above $400,000 USD. Together, the proposals would increase the top marginal rate on long-term capital gains and qualified dividends to 44.6%".

Thus, the Biden administration's proposal would increase the combined federal and state capital gains tax rate to over 50% in several states. Specifically, California would see a rate of 59%, New Jersey would have 55.3%, Oregon 54.5%, Minnesota 54.4%, and New York State 53.4%.

SOME HIDDEN DANGERS OF INCREASED CAPITAL GAINS TAX RATES

One of the significant issues with the current capital gains tax is that it needs to adjust for inflation. This oversight means that Americans often pay taxes on gains that are merely nominal, not actual increases in wealth. Essentially, it becomes a tax on inflation—a phenomenon spurred by Washington policies, which then paradoxically taxes the inflation it helped create. Under the Biden administration, this issue is exacerbated by higher inflation rates, making it particularly burdensome.

Consider the example of a hardworking young couple who founded a small business and plans to sell it upon retiring at age 65. Under the proposed Biden tax plan, they could face a top federal rate of 44.6% on capital gains and state-level taxes. A significant portion of the profit they perceive on paper may not represent actual financial growth but simply the result of years of inflation. Nevertheless, they are liable for taxes on these so-called gains, effectively penalizing their lifetime of effort and investment. This scenario highlights, once again, that taxes are theft. It's not just your money that's stolen; it's your lifetime.

Unfortunately, Biden's antagonism towards the wealthy doesn't end there. President Biden is also considering introducing a new tax policy to change how inherited assets are taxed. This new policy would eliminate the stepped-up basis provision, which currently adjusts the value of inherited assets to their market value at the time of the original owner's death. Currently, when assets are passed down to heirs, they are only taxed on the capital gains accrued from the time they receive the inheritance, not from when the assets were originally purchased.

However, Biden's proposal aims to tax the unrealized gains of these assets at the time of death. This means heirs would face a capital gains tax bill on the appreciation of these assets during the original owner's lifetime, regardless of whether they sell the assets or not. This change would be in addition to the existing estate tax, effectively creating a double tax situation at death.

Under the new proposal, small businesses, which traditionally rely on the stepped-up basis for tax relief upon inheritance, would find themselves liable for substantial taxes on assets that have appreciated over time, even if no sale occurs. This scenario may result in heightened financial pressures and more complicated tax obligations for small business owners, farmers, and families intending to transfer assets to their descendants. This change would dismantle a long-standing tax mechanism that has allowed small businesses to transfer ownership without facing prohibitive tax burdens.

It seems that Biden does not believe that inheritance is a right. He seems to support the idea that everyone should start economically equal at birth and that families should not be able to pass on their wealth to their children.

The Statue of Liberty was once a symbol of freedom for the West, but today its meaning has been lost, and the Americans are lethargic

ZERO-SUM GAME MENTALITY BEHIND THE FY 2025 BUDGET PROPOSAL

The astronomical tax rates proposed in the FY 2025 Budget Proposal illustrate the Biden Administration's view of the economy as a zero-sum game. In a zero-sum economic scenario, one participant's gains are exactly offset by the losses of another, and the overall net change in wealth among participants totals zero. This perspective views one person's gain as directly resulting from another's loss, with no new wealth being created or destroyed.

Anti-capitalists often fail to grasp that market exchanges are a complex form of social cooperation. They believe that wealth can only be obtained through appropriation. They do not trust the productivity of those who have become rich and are playing by the rules of the market. For anti-capitalists, justice can only be achieved by extracting more taxes from the rich. If that were not enough, they are hypocritical. As Ludwig Von Mises wisely said, "Anti-capitalism can maintain itself in existence only by sponging on capitalism."

PROGRESSIVE TAX SYSTEM

Progressive tax systems operate under the belief that those who are successful in a market economy owe more to society than others. To them, earning more is a sufficient reason to be discriminated against through tax policies. Money earned is viewed not as a natural result of one's productivity in the market but as income gained at the expense of others, and excessive taxation is normalized. In progressive tax regimes, your property right is not recognized as an inherent right. Your earnings are only secured when they help so-called disadvantaged groups in society.

However, an effective market economy is never a zero-sum game. Exchange processes are about creating value, and such economic activities are considered "positive-sum games." In the free market economy, cooperation and innovation increase total value, thereby creating more wealth for the economy overall. Entrepreneurs and workers earn their worth from the value they create. We know the profit and loss system is the most efficient in allocating scarce resources rationally, rewarding those who made good decisions and punishing the malinvestments.

Increasing tax rates on the earnings of a specific group of highly productive executives and business leaders can discourage their ongoing work and have other adverse effects on behaviour, ultimately leading to a less vibrant and slower-growing economy.

Increased taxation on investment income affects the financial gains of ambitious entrepreneurs who take risks and overcome failures to establish lucrative businesses that offer beneficial products and services to individuals globally. Proposing a significant increase in the capital gains tax rate and introducing additional taxes like the stock buyback tax and unrealized capital gains tax would have a detrimental impact on American innovation. These measures would place the tax burden on capital gains far beyond its optimal revenue-generating level, potentially stifling economic growth.

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CONCLUSION

As demonstrated, Biden intends to continue with the economic planning policies for 2025, unashamedly increasing taxes, either directly or indirectly. We've seen that the free market economy, which has incentives for wealth creation, is not a zero-sum game. A planned economy is a mistake, what Austrian economists call "fatal conceit" — when a group of bureaucrats think they know what's best for you and believe they hold all the societal knowledge needed to make decisions for you. This occurs when governments decide to take away your freedom in various ways, with the easiest method being the increase of taxes disguised as social policy as if politicians care about anything other than their own reelection.

A country that has no shame in excessively taxing you is a country that enslaves you, and you do not deserve to live your life this way just because you were born in this country — nor does your family deserve to be condemned for originating from this place. That's why I am an expat and work every day with clients from all over the world who are looking for a Plan B, seeking freedom, aiming to protect their wealth and their families, and many of them securing their retirement in a better place, especially in countries with good tax incentives.

The U.S. debt continues to skyrocket, over $34 trillion USD, and any measures taken would be catastrophic for the economy. Four or eight years in office would not be sufficient to settle the tab of this decades-long, costly political spree.

Even if you aren't looking to leave the United States permanently, you should start thinking about ways to get your money out via residences, second citizenships, trusts, foundations, or offshore structures. You can start taking your first steps in this journey today by getting this free special report and subscribing to our newsletter.