President Biden on Wednesday proposed tax increases for high-income individuals — including increases to the top income tax rate and capital gains tax rate — as a way to pay for his new plan focused on education and child care.
Biden's American Families Plan calls for $1 trillion in spending as well as $800 billion in tax cuts for low- and middle-income households. The White House said that the families plan, when combined with an infrastructure proposal Biden released last month, would be fully paid for over 15 years.
Biden is calling for the top individual income tax rate to be raised from 37 percent to 39.6 percent, its level before the enactment of former President Trump's 2017 tax-cut law. The White House said in a fact sheet that this increase would only apply to taxpayers in the top 1 percent of income.
The president's plan also proposes raising the capital gains rate from 20 percent to 39.6 percent for taxpayers making over $1 million. A White House official said the $1 million threshold would be the same for both single and married tax filers.
The proposal to raise capital gains taxes drew criticism from Republicans and the business community even before Biden's plan was officially released. White House economic adviser Brian Deese defended it during a press briefing Monday, saying the tax increase would only impact about 500,000 households.
Biden's plan calls for ending a tax preference known as "stepped-up basis" that allows people to pass investments down to heirs without the investments being taxed at the time of their death. The plan would ensure that family-owned farms and businesses wouldn't be taxed if they are transferred to heirs who still run the businesses.
Additionally, the plan would end the carried interest tax break that benefits investment-fund managers, and it would make permanent a limitation on the amount of excess business losses that could be deducted in a given year. The president's plan also calls for making sure that a 3.8 percent Medicare tax applies consistently to those making more than $400,000.
In addition to calling for tax increases for the wealthy, Biden also seeks to pay for his families plan through increased IRS enforcement to ensure that wealthy people pay the taxes that they owe.