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Joe Biden ‘s proposal almost double the capital gains tax rates as the wealthiest Americans have unleashed a heart of disapproval from major investors, underscoring the intense opposition the U.S. president will likely face as he tries to push his plan through Congress.
“It’s crazy,” said Scott Minerd, who oversees $ 310 billion in assets for Guggenheim Partners, a leading investment firm.
“That’s not because I’m a Wall Street capitalist,” he said. “The rates proposed by the administration of the current president. . . it would probably reduce tax revenue over time and discourage people from spending money on long-term investments. “
“It’s not about taking pity on millionaires,” said Anthony Scaramucci, founder of SkyBridge Capital hedge fund, who briefly served in Donald Trump’s White House. “Doubling the higher rate of capital gains would have detrimental effects on job creation and wage growth for middle-class workers.”
Biden proposes the tax increase pay additional expenses in child care and education. The plan includes raising the upper income tax rate and applying ordinary income tax rates to capital gains for Americans earning more than $ 1 m a year.
Along with an additional tax on investment income introduced at the time of Barack Obama’s health care reform, this would bring the total capital gains tax rate of the richest Americans to 43.4%.
Potentially among the financial losers are private equity executives and technology investors, whose profits include a portion of the profits of the funds they manage for external investors. These “reported interest” payments are usually taxed at the lower rate of capital gains than instead of income, and if Biden’s plans succeed, that difference could disappear.
Protest howls resounded from Wall Street to Silicon Valley as financial pressure groups prepared to influence legislation.
The proposals “could kill the golden goose that is America,” tweeted Tim Draper, one of Silicon Valley’s best-known venture capitalists.
Another prominent technology investor agreed that “the model moves more towards consumption than towards investment. In my opinion [that] it’s bad for the economy [in the] in the long run, as rich people focus more on consuming now [rather] to invest or save for the future “.
These concerns were echoed by Michael Sonnenfeldt, president of Tiger 21, a “peer-to-peer membership network for people with high net worth” that has more than 850 members and focuses on preserving wealth.
A doubling of the capital gains tax would represent “a slap in the face to entrepreneurs” who risk starting a business, said Sonnenfeldt, who says a carbon tax would be better. “There is no guarantee that doubling the capital gains tax will result in a doubling of income. People will find a way to avoid generating capital gains.”
Biden and many Democrats they believe that successive rounds of tax cuts have left the U.S. tax code overly inclined toward the rich, and that lack of revenue has led to underfunding of critical utilities.
They also believe that the American economic structure should change to benefit workers rather than capital owners, who they consider one of the main contributors to income inequality and the exclusion of the middle class.
Even before Biden became president, Washington sporadically entertained higher capital gains taxation, including hedge fund and private equity managers. The measure was pushed largely by Democrats, but only occasionally by Republicans.
However, some financiers questioned in private whether any proposal to eliminate favorable treatment of capital gains would gain strength. While many Democrats appear on board with incremental increases in personal and business income tax, it is possible that some may think of a comprehensive overhaul of the structure of the tax system.
Markets fell in the news of the proposals, as investors prepared for wealthy shareholders to abandon their shares while they could still block lower levies on capital gains.
“This is a shocking figure,” said Brad Dillon, UBS Global Wealth Management’s chief wealth strategist, about the proposed maximum rate of capital gains tax.
But he suggested he may not have the backing of key Democrats, whose backing could be crucial to getting a plan through the Senate. “I will see what he does [West Virginia senator] Joe Manchin thinks about it, what Kyrsten Sinema means [of Arizona] think about it, ”Dillon said.
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